At an ad:tech session titled "Web 2.0: Predictions and Pithy Analysis," Nielsen//NetRatings Senior Vice President of Industry Solutions Charles Buchwalter and Roy de Souza, CEO of ad serving network Zedo also offered analysis of the usage habits of Web 2.0 "denizens" and advertising on Web 2.0 sites.

Web 2.0 sites--defined loosely in the session as those allowing users to "talk" to their "friends" via e-mail, messaging, blogs, and other social media tools--ranked first in year-over-year growth in unique audience and Web pages viewed. That put Web 2.0 ahead of categories including news and information, ISPs, video and movies, and family resources.

Social networking sites with the highest traffic growth included Feedburner (385%), Digg.com (286%), MySpace (170%), Wikipedia (161%), and Facebook (134%).

The Nielsen//NetRatings data also showed that engagement with Web 2.0 sites had grown over the last year, with retention rate increases of 10% at MySpace, 46% at Wikipedia and 20% at Facebook. Web 2.0 users also tend to be more active than typical Web users in online search, with 63.8 searches per month compared to 44.7 for the total market.

And while "aggressive" Web 2.0 users--people who make social sites part of their daily life, believed to account for 15% to 20% of the population--look at the same 17 news and information sites as everyone else, they're more voracious but less loyal news consumers because of information retrieval tools such as RSS feeds.

Despite the hype, the panelists were quick to note that not all social networking sites have enjoyed explosive growth. After initially drawing a lot of members and media attention, Friendster has since withered--a victim of its own arrogance and complacency, according to de Souza. Other once-promising social sites that haven't caught on for various reasons include online calendar kiko, dating service Engage, business networking site Ryze and Tribe.

By contrast, up-and-coming Web 2.0 sites that de Souza identified include yelp, which has user restaurant reviews; dogster, for dog lovers; online gaming community Xfire; Eons, aimed at baby boomers 50 and over; and video-sharing service BitTorrent. (de Souza didn't seem especially troubled by the copyright issues BitTorrent may face when it formally launches its peer-to-peer video site next year).

The panelists emphasized that sites shouldn't start social communities just for the sake of having them. de Souza pointed to yelp as a community site created for a straightforward purpose--providing consumer-based restaurant reviews that can be updated over time. "Many of these sites worry about people signing up and not coming back," he said.

The panelists also agreed that advertising will be the predominant business model for Web 2.0 sites. de Souza said advertising falls into two categories: Class 2, or remnant, and premium. Remnant advertising typically carries a CPM of less than $1, and is bought through large ad networks such as Advertising.com. A frequency cap is usually negotiated as part of the buy. Conversion rates hover at less than 0.1%--better than many news sites, but not as good as on premium sites such as iVillage, de Souza said.

Premium Web 2.0 ads have CPMs ranging from $2 to $20, and are bought directly by advertisers. They encompass a broader range of formats including sponsored groups, customized page backgrounds and online promotional contests.

Overall, most of the advertising on social sites is now text or banner ads from direct marketers, "definitely the lower end," as de Souza described it. But he said that during the last year, Web 2.0 sites had begun carrying higher-level brand and targeted advertising. He said that over time, the remnant advertising on social sites would also become more valuable as the sites became better at targeting the ads.

Buchwalter predicted a bright future for video advertising--in particular, for Web 2.0 sites. "There's no question video is going to play a huge role," he said. Market researcher eMarketer forecast online video advertising to grow to $2.9 billion by 2010 in a study released Monday.

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