The social advertising puzzle

There’s no doubt that social ties have tremendous value: people find love and work largely through the people they know and the people the people they know know.

And there’s no doubt that digital representations of social ties add value. Facebook does improve people’s lives.1

The puzzle, and one of the key challenges facing companies like Facebook, Google, and Yahoo!., is how social media can make money. So far the evidence is most users won’t pay directly, which leaves ideas like virtual goods, community marketplaces, app stores, and, of course, advertising. Unfortunately, although we know great ways to advertise to people searching, and decent ways to advertise to people viewing content, it’s less clear how to advertise to people communicating.

P&G’s Ted McConnell puts it bluntly:

What in heaven’s name made you think you could monetize the real estate in which somebody is breaking up with their girlfriend?

Riffing off of this quote, Wired asks the $15 billion question: Is social advertising an oxymoron?:

So, what if social media and advertising just don’t mix?, a social advertising startup, begs to differ (hat tip to Cong Yu), reacting to the same provocative McConnell quote. Their answer:

Advertisers only pay when users volunteer to say something about the brand to their friends.

Indeed, this sort of paid version of Bem+Wom (“BEtter Mousetrap + Word Of Mouth”) — more on this in the next post — is one of the first things people think of when pondering how to monetize a social network. But can it work well and if so, how?

Three disjoint friends like Rooster Sauce. Who knew?

1For example, I never would have guessed that three completely disjoint friends of mine are all fans of Sriracha Rooster Sauce. Who knew?

7 thoughts on “The social advertising puzzle”

  1. Nice to see you are taking a look at this space. Last time we spoke I was working on prediction markets, but now the tables have turned – and SocialMedia is one of my clients. I’ve just started diving into their database and while I’m not in a position to divulge whether it works or not, I can say there are some pretty interesting statistical graph theory problems to be solved to make it work better.

    I look forward to hearing more of what you have to say on this topic as it is a very interesting matching problem.

  2. How does one monetize a site in cyberspace?
    One group of conventioneers decided to hold their break-out session at a Craps Table at Ballys. That was one way of converting the information and camaraderie to cash flow however there was no control over the direction of the cash flow!

    Consider the social network itself: if its size is suitable it may represent a sort of community wherein cyberfriendships have value. A large social network could result in dilution of identies but improved vote counting. However the smaller network yields “friends” and we tend to value our friends preferences for sauces over the preferences of the unknown teeming millions many of whom may indeed have very well educated palettes.
    We tend to accept even a cyber-friends recommendation of a restaurant far more than we accept some web-voting from anonymous sources. One mention from Harry the Craps Dealer can outweigh the results of a massive “Best of Las Vegas” voting panel.

    Given the fact that data derived from social networks seems to have a premium it might this premium that is the source of monetization. Consider Lloyds of London. Its value was NOT the coffee that was available; its value was the meeting place and known identity of the participants. The NY Stock Exchange was created by a group that originally met under a Buttonwood tree. Should we view that as a “monetization” of a tree? Or the “monetization” of the small group that met there?

    A Bragging Rights sports site may have a stellar performer who unknown to him is having his picks highly monetized. Is it the Social Network that he belongs to that is being valued or the information about his track record which itself is based in part on other social networks?

    Do shoppers enroute to Trader Joe’s check a social network site before buying a sauce? No, but once they have encountered the “tidbit” of information about that sauce they may indeed be influenced by it. So the way to monetize the social network site is to monetize the individual tidbits. You monetize a cocktail party site by monetizing the discrete tidbits of conversation and the identity of the participants along with the host’s reputation.

  3. Joshua: Great, thanks for the note, seems like we’re traveling in similar circles. Glad to see that you and socialmedia are diving in head first.

    FoolsGold: Agreed that there is tremendous value in friend-to-friend recommendation but the trick is to monetize it without blurring it. Once it becomes affiliate marketing, the endorsement becomes less believable.

  4. “…there is tremendous value in friend-to-friend recommendation but once it becomes affiliate marketing, the endorsement becomes less believable.”
    I would agree that there is very little value in these “canaries” that are paid to sing praises for some product being pitched. I was thinking more along the lines of some blog that is totally unrelated to culinary items mentioning a particular seasoned salt. Its sort of the electronic equivalent of Art Linkletter’s ploy wherein he started doing the commercials as part and parcel of his show and at times that did not coincide with the great water-pressure drop as everyone left the TV set as the network commercials came on. It is not a way of marketing the blog or his believability, its more a way of marketing his well-roundedness as an individual and the loyalty of his readers as part of a community.

    I think its roughly similar to “product placement” in movies and TV shows. It used to be rather minor, now its a major matter and its often obvious that a particular brand is being “featured”. It diminishes a shows independence and neutrality, but the show probably didn’t have much of a reputation for independence and neutrality to begin with. A blogster however does have a reputation to protect and can not be seen as a huckster yet he can still monetize a portion of his reputation the way a sports figure can do a product endorsement without totally destroying his image.

  5. As with any marketing scheme, there is only so long you can run on the irrational behaviour of consumers. If you invent a novel advertising approach people might pay attention to it until they realize that paid shills are involved.

    The best way to sell a product (at least in my book), is to have a good product. And the best form of social marketing is to prompt consumers to have honest conversations about your product. If your product is good, and your customers are being honest, then people will pay attention.

    There is nothing new here. Word of Mouth marketing / Social Marketing / Viral media are just incarnations of people talking about the products and services that they consume. It is just that with new technology we can measure the parameters of these behaviours more efficiently and we can re-write the science of marketing metrics.

    But none of this replaces the need to make good products.

  6. It seems that paid advertisements seem to pervert the idea of social networking. At times I feel that we should let it [social networking] do its job, and we should stick to what we know to be successful traditional advertising efforts; but can we stop the progression? Probably not.

    I suppose if we follow the same well-known ethics and keep the customer (or recipient) in mind, then it could be a win-win.

    And Joshua, I agree with you; the best advertisement is having a great product.

    Thanks all for the conversation.

Comments are closed.