Ad CTR On Social Networking Sites

For some people the debut of Facebook’s Flyers Pro has been somewhat lackluster, especially when it comes to the CTR. Another web consultant found similar results -actually, abysmal results– on MySpace. I left comments on both posts to hopefully generate a dialogue along the lines of:

1. Can we contextually target the profile to place highly relevant ads? In other words, rather than matching to content, would it be better to match it to the user profile? Would that increase the disappointing CTR?
2. Do we need to think outside the box as far as advertising on these sites? Would it be better to take advantage of widgets, etc., since the ads are placed outside the context of search?
3. What are the overall implications from these preliminary numbers? Is monetizing social networking solely through advertising not a viable model?

For a great breakdown/educated guess as to what value Facebook saw in adding a CPM/CPC advertising module on profile pages, head over to the smart guy’s blog.

UPDATE

Steve Rubel recently weighed in his (very similar) thoughts concerning the rather unsuccessful venture in monetizing Web 2.0 through advertising.

Why It’s So Difficult To Monetize Web 2.0

So maybe it’s time to take my training in post-colonial literature studies and apply it, in an ever-so-esoteric manner, to Web 2.0 and the problem of monetization.

The Problem

As the New York Times once again trumpets the possibility of a dot-com bust (see today’s article Silicon Valley Start-Ups Awash In Dollars, Again), I am beginning to believe the issues presented by web pessimists are somewhat pertinent: once again money is being thrown at sites that can only guarantee eyeballs… and in most cases not even a lot of eyeballs (sans MySpace, Facebook, YouTube, etc). It appears many are forgetting that guaranteeing eyeballs is not a sound revenue model. Even with successful advertising campaigns running on these sites, that still does not make up for other costs. YouTube is a prime example of delivering a significant audience, but with the bills they must pay for bandwidth alone I can’t foresee them making acceptable margins.

So why is it so hard to create business models around this new venture in media? I think it’s because we are trying to do something completely new; honestly, I cannot think of another instance in history where it has been done before.

The Real Question

I’m not an economist, but from what I understand a free market economy runs by taking natural resources, land, and labor and turning those materials into a commodity that is then sold at a profit. This commodity is bought at the expense of a ‘thing’ that has an arbitrary exchange value attached to it (money, for instance). But what are we trying to do with Web 2.0? Let’s use Facebook as an example: we are trying to monetize relationships. So rather than using materials to create a product that is sold, we are using materials to facilitate relationships. Cell phones facilitate relationships, but people are willing to pay for tools like an iPhone and for an outrageous monthly bill, keeping shareholders for Apple and AT&T happy. But ask anyone from the generation that is utilizing Facebook if they would pay for it (and keep in mind, this is the same generation doling out oodles of money for that iPhone and monthly bill). What do you think their answer would be?

I thought so…

Three effective business models are typically subscription fees, commission fees and advertising. The latter is being utilized heavily in Web 2.0, but I feel this will not make the majority of sites profitable. How do you monetize interactions between people? Dating sites such as eHarmony do exactly that, but finding a significant other is a critical priority for many people… commenting on a friend’s new highlights or hair cut not so much. So maybe we are asking the wrong question; maybe we should ask why isn’t Facebook such a great service that people would pay for it? But even then, Generation Y and on are used to free services; we’ve spoiled them (free MP3’s, free email accounts, free Facebook, etc).

All this said, maybe one channel for revenue is a great program that aggregates these services and allows users to access all the sites they use through one portal. Online services such as Netvibes are doing this, but I have yet to experience a robust application that is also easy to use. For access to their sites and API maybe Facebook and MySpace could charge the developers of these programs. Anyways, this is just one thought, but it still does not address the more direct question of how to monetize personal interactions and relationships; I’m really at a lost for that…

Search Engine Optimization And The Struggle Over Content

Because organic search results account for approximately 70% of traffic sources, we know how critical it is to maintain high rankings for keywords related to your product (visit Medium Blue’s informative commentary on Organic SEO vs. Pay-Per-Click Advertising). Following this reasoning, during an SEO optimization program for our clients we advise adding relevant content to their websites to boost keyword density, thereby increasing their rank and exposure.

But the matter becomes complicated because of the other online channels through which we advertise. Here is one illustration: one of our account executives gets a sales call from xyz.com about their advertising opportunities. We set up a time for them to come by the office and present their programs. They’re excited to meet and present to us, and even sometimes bring bagels (but then forget the cream cheese :P). We agree our client would get decent exposure to a targeted audience for a relatively small price. But after the sales representatives from xyz.com leave, I’m stuck with the nagging thought that all we’re doing is taking content from the website we’ve built for our client, and have optimized for our client, and handing it over to xyz.com only to compete with us in organic search rankings.

The scary thing is that clients are catching on to this conundrum as well. I just got out of a meeting where a client basically asked, “Wait, I’m paying you to optimize my site, but you want me to advertise on this other site, which in effect pits my content against itself in natural search rankings?”

Uh-oh…

Yes, that’s what I’m asking you to do. However, we need to think in broader terms, particularly when dealing with higher priced items. When it comes to products that cost more (such as real estate), internet buyers spend a considerable amount of time educating themselves. Also, many websites (such as ones that deal with real estate) are going to post your information whether or not you’re paying for it (for instance, Streeteasy.com). So why not buy a hand in controlling the content for which consumers are already searching? Why not pay to have more exposure on these sites as well? Most importanly, I think you’re giving the consumer another channel through which to feel educated. And the benefit of a consumer feeling educated about a product is that the window from expressing interest to putting down money becomes much shorter (again, this specifically applies to real estate buyers, but I don’t think I can post the research because it’s proprietary [many apologies]).

So yes you’re distributing content that makes you compete with other organic search results. But you are also increasing your brand’s awareness, utilizing a measure of control for the content consumers are viewing, and, finally, aiding in the consumer’s search and helping them feel they’ve done their homework. That sound like a decent return on investment to me.

IAC Debuts Pronto: “Shopping Gone Social”

Last week I met with some great folks from IAC to discuss one of their new initiatives, Pronto (which was recently launched and is still in beta). The goal of Pronto is “shopping gone social,” and we discussed the community aspect of their new website (I guess because I’m an active member of Yelp [well, active before I started hanging out at the office until 8 or so…]).

When I started poking around the site I felt this may be the first social networking hub that could actually make money. I’m not clued in on the details, but here was my thought process: I have friends with their own podcast, and at their points of distribution (blogs, etc.) they have Amazon, iTunes, and other affiliates set up. So every time a user clicks on a little Amazon badge and ends up buying something, they get a (very) small part of the revenue. Pronto is structured around liking or disliking products and the reviews users make about these products; you can also compare shopping outlets online to make purchases. Now if the people at Pronto were able to set something up like my friends have with their affiliates, it could bring in great revenue (but I don’t know the intricacies of how or even if that could be accomplished).

But if that doesn’t work, they could have “Featured Stores” on the Product Review pages, where online outlets pay to be at the top of the list. And to deflect any complaints from users, they could be open about why those stores are on top, such as “Shop With The People Who Love Us More” (kidding… well, not really). Or, have a featured brand of the day where certain companies could pay to have a special presence on the website for a period of time; I have something in mind like Pandora, because although that site, according to the founder, is still losing “an armful of money every month,” I’ve read elsewhere they have incredibly high click-through rates on banner ads. Anyways, the site presents many possibilities.

Our conversation last week got me to thinking about what makes social-networking sites successful. I think sites like Myspace and Facebook fall into their own category because the main point is to keep in touch with friends. Other sites, such as Yelp, have built strong online communities with people who, for the most part, have never met but eventually take time to meet offline and hang out. I think the critical attribute about Yelp is it’s local focus, which is something users can unite around (such as the MTA meltdown due to rain; that was New York-specific and we could all post about it online). For Pronto, the one thing I can foresee users uniting around are brands. For instance, I’m not usually into brands, but I do dig Apple and Guess jeans; when those groups form on Pronto, I’ll be one of the first to sign up. This could be achieved through a few ways: showing on profiles other users who have similar tags, or, like Last FM, show users their compatibility (based on similar likes/dislikes). The second thing that makes other sites successful is their, what was basically called “ego stroking.” On Yelp you can send compliments, rate user reviews, get a Review of The Day, and on and on. Anything along these lines could help keep users engaged. Finally, ease of use is critical. Using Yelp again as an example, one of things I enjoy most about it is how easy it is to interact with others: to give someone a compliment, I do not have to click through to another page because all compliments (and private messages) can be sent through a little pop-up box, which doesn’t interfere with how I’m utilizing the site.

In the meantime, Pronto does have its bugs to fix. Such as having copies of my replies to other users in the Inbox, to fixing the search help (when looking for a Motorola Q, suggestions came up before I finished typing; one suggestion was “Motorola Q smartphone” which I clicked but brought me to a page of accessories instead). Also, I can’t imagine what goes into normalizing all those products. That must be one helluva task. But at least they payoff (pun intended) could very much be worth it.