Small steps forward for social media advertising

Last week, Yahoo executives told several news outlets that, counter to earlier speculation and rumor, it was not going to sell its Right Media online advertising exchange, and that it was recommitting to ad technology investments. For all the product-focus talk surrounding new CEO Marissa Mayer, Yahoo appears to be continuing on a content plus ad network strategy similar to that of Aol. Or to MSN, for that matter. While not quite in the category of re-arranging the deck chairs on the Titanic, these machinations are peripheral to the real engine of online advertising – search – and the potential ad growth accelerator – social media.

Google comfortably dominates search right now, but Facebook is getting hammered for not growing social media ad revenues fast enough. A few months ago, I pointed out some of the realities of social media advertising: its volume comes from cheap inventory, big advertisers often spend more on their Facebook pages than on Facebook ads, and spending hasn’t exploded because the industry hasn’t really figured out how to harness social media for brand advertising.

But there has been some recent progress on the social media ad front. Nothing like a major breakthrough, but some promising steps forward, including:

Still not search

Social media has something of an inferiority complex. Much of the advertising that runs on social media is pay-per-click direct marketing that, even with targeting, suffers in comparison with search. It always will, as search is such a powerful indicator of active intent. Facebook knows that, but its search dabbling is just that – dabbling. Marketers can’t buy keywords yet, and unlike its display ad business, Facebook search advertising doesn’t offer scale.

App makers and brand page marketers are figuring out a few ways of getting value out of Facebook’s first paid search efforts, but Facebook is no threat to Google. While social signals can be a useful input into search results ranking, they’re no substitute for the heavy lifting of indexing and analyzing the content of the web. Facebook is smart to experiment with search, but it’s even smarter to focus its technical and support resources on brand advertising.

Question of the week

What else should social media companies do to accelerate ad revenue growth?
Relevant Analyst
P1040724

David Card

VP Research Gigaom Research

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