Social Advertising Models Go Back to the Future

1Executive Summary

When you read an interesting article or visit a new web site, it’s increasingly because a friend sent you a link or mentioned it online. And when you have a question about where to eat or what to buy, you ask your contacts on Facebook or Twitter, or head to a site like Yelp or TripAdvisor to seek the wisdom of the crowd.

This kind of behavior leaves a site like Google out in the cold. Google’s monetary metrics of success still trend in the right direction, but its “search, seek, and consume” model — the core of its business — is clearly threatened by the rise in popularity of online social activities that replace search. According to Hitwise, U.S. visits to Facebook.com surpassed visits to Google.com for the first time last week (that reportedly doesn’t include non-search Google properties).

Facebook COO Sheryl Sandberg, who left Google for her current gig, has described Facebook’s core asset as “the wisdom of friends” vs. the wisdom of crowds, and a recent study by MIT and Microsoft Research found that more than half of questions asked on social networks solicit friends’ recommendations or opinions.

That’s not to say people wouldn’t be better off asking Google many of their questions — doing so would allow them to utilize the search engine’s algorithmic excellence and the fact that many other people may have asked or answered the same question in the past. As GigaOM contributor Kevin Kelleher wrote in a recent column, “The conversational web isn’t going to make the informational web irrelevant.” And while Facebook’s U.S. search share was up 10 percent last month (taken from users explicitly using its search box, not directing queries to their friends), today the site only gets three percent as many searches as Google.

However, if our search behavior is being redirected to the social world, a shift in dollars seems an obvious corollary. After all, it’s these very questions about products and recommendations that make Google’s prime mode of monetization tick. AdWords, which for years has been Google’s top source of revenue, is ideally suited for responding to user queries about products and local businesses. Show them a good ad, and maybe they’ll click directly to an advertiser’s site instead of proceeding with their organic search path. Show them a better search result, and they’ll come back again and, hopefully, click on an ad during a subsequent visit.

AdWords offers performance advertising — paid for only when users respond — but many of the monetization models being applied to social media run in the opposite direction: Multiple social media monetization startups interviewed for this story said they were surprised to see traditional brand advertisers rather than performance advertisers become their core clients. You might have expected that after the cost-per-click revolution led by Google, contextual advertising would continue to be the ticket for web monetization going forward. But that hasn’t been the case. “I would argue that social media is the worst place on the planet for performance advertising,” Appssavvy CEO Chris Cunningham told us.

Rather than targeted advertising based on keywords, social media advertising utilizes billboard-type brand advertising (paid for by how many people see it) that encourages positive feelings and awareness about a brand — only now they’re upgraded with interactivity and engagement.

Mark Zagorski, chief revenue officer of behavioral-targeting data exchange eXelate, which helps advertisers reach potential customers by looking at their implicit actions online, said his company also thinks its ultimate mission is to serve brand advertisers. “At any given time 10 million people may be in market for a car, but auto advertisers don’t just want people in the market for the car, they want to hit the aspirational people,” he said.

Here’s a closer look at how the new social breed of web players are looking to monetize their users:

Affiliate Advertising

Social e-commerce is probably the most natural and obvious way to monetize the recommendations and endorsements implicit in your social-media “friends” buying behavior or explicit in their recommendations. Some startups exploring this area include Viglink, which helps bloggers tie their links to existing affiliate programs, and MyLikes, which is like AdSense using sponsored social media content from trusted bloggers and tweeters. Startups can also make affiliate money by improving the web experience around shopping. New wedding shopping startup Shiny Orb is doing this with social tools, Polyvore is inviting user-generated fashion mashups, and Vente-Privee gives invite-only access to private sales. Affiliate advertising will also probably be the monetization method of choice for social recommendation sites like Hunch.

Incentives

Incentive structures and viral channels, the same magical combination that has been put to use to drive the incredible growth of social gaming, can also be put to work more directly for brands. Bunchball, a startup that ties together social experiences for customers of companies like NBC Universal and Comcast, registers users to compete for points, and providers leaderboards and virtual incentives. That makes individuals — close to 50 million of them now registered through Bunchball’s clients — extremely trackable, and therefore incredibly useful. “People respond to incentives,” says Bunchball CEO Peter Daboll. “If you can get people to register and do something, you have them for life.”

Real-Time Engagement

Companies are going to need to put more effort into consistent, frequent and quality participation on Twitter and elsewhere. That’s an opportunity for social media companies to help them out by training them to engage in social media, automating social media monitoring, and analyzing user sentiment. “That one hit piece of static content that’s ever so beautifully optimized isn’t going to figure in real-time search because the relevance is different,” said Tobias Peggs, general manager of real-time search site OneRiot on a recent panel. “You need to pump out updates — that’s how you show up at top of real time.” And that presence pays off by helping create a relationship with your core customers. Users say they are much more likely to buy from or recommend brands that they follow on Facebook and Twitter.

Local Marketing and Advertising

Mobile phone users are increasingly able and willing to share their physical location in order to get information and participate socially. That means targeting doesn’t have to be virtual anymore — connecting likely customers with products can happen in the real world. Companies like Foursquare work with businesses to reward customers who associate themselves with that brand; if a user earns the position of virtual “mayor” of a location by returning to it often, they receive a free drink, or some other discount. Groupon and its many groupies are mobilizing customers, en masse, to frequent local shops and services using email and social tools. The best thing about local social advertising? It brings a whole new category of retailers into the market for online advertising.

Native Ad Formats

Social media advertising can help direct users to visit your destination site, but it can be more effective to foster a conversation with your target audience on their turf. Digg has found success with formatting ads in the style of its voted-on news stories — not as a way to deceive users, but to encourage advertisers to appeal to members by speaking in the local language. (See our recent story on the Digg Ads program.) Other new native ad formats include Facebook Fan Pages and applications, which companies like Appsavvy specialize in making extremely engaging through user-generated content, games and contests.

Behavioral Targeting

Personal information is the new web advertising context. With users sharing more information about themselves online, advertisers would be fools not to take advantage. Facebook, for instance, has aggressively offered its users’ profile data to advertisers, giving them the option to show ads to users based on something as specific as users’ romantic relationship status. However the site is a long way from showing advertising that’s regularly relevant — it often seems completely random.

Tim Hanlon, a principal at the consulting firm Riverview Lane Associates of Chicago, recently told the New York Times for an article on “off-key” Facebook ads, “When it works, it’s amazingly impactful, but when it doesn’t work, it’s not only creepy but off-putting. What a marketer might think is endearing, by knowing a little bit about you, actually crosses the line pretty easily.”

The behavioral targeting industry is in the midst of rushing to show the U.S. government that it can self-regulate, but it will always need to tread delicately to make users feel comfortable about their data being used for profit. Companies like Facebook are already closely watched for how they handle (and mishandle) privacy issues. If a few, widely publicized misuses were to happen, the general public could think behavioral ads are worse than creepy.

Sure, many of these innovations are tweaks to existing monetization techniques — marketing, branded content, getting users to actually spend money. But as user activity shifts to social, monetization needs to do all it can to catch up.

Please see the disclosure in my bio about Facebook.

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  1. It’s an exciting new world for advertisers right now, but personally, I find many attempts by advertisers to target me on Facebook creepy. I don’t mind adverts for brands targeted at my demographic, but the whole “we know how old you are!” thing is odd. It must work, though, because advertisers still do it. Location-based advertising is exciting, but, again, advertisers need to be careful to avoid creeping people out.

    I can see why performance based (CPC) advertising would do terribly on social networking sites. Adwords works in Google because you’re already searching for something, so if you see a related advert you are likely to click. When I am surfing a social network, I do not usually have a specific goal in mind, so am less likely to click that ad. Adwords ads in Gmail probably do pretty badly, too.

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  2. Gmail is a good one to include in this discussion though it’s neither a social network or search. ^^^At the Gmail panel at SXSW, some of the product people said they have recently started showing fewer ads, and only ones they think are particularly well targeted. They wouldn’t go into numbers, of course, but they said that the ads ” do a pretty reasonable job at covering our costs.” ^^^(that’s a direct quote from my notes)

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