Social Connections Rule: Now Monetize
Contrary to some high-minded tech sages, social networking, content and interactive advertising are mutual allies. The exchange of personal data, recommendations, video and routine banter is core to the interactive experience. No matter what you are doing or selling on the Internet, there is a likely social element that can be valuable as an advertising or commerce component.
That explains why Comcast has expanded its Web strategy by acquiring Plaxo, to bring a layer of social exchange to its TV set-top box video and data, and eventually its WiMax platforms.
The puzzle of how to make social networking (in the broadest sense) pay has prompted rivals to open their networks to each other. Just this week, Facebook, MySpace and Google announced social-networking initiatives, such as Facebook Connect (that extends the social networks to other sites), Google Friend Connect (giving Web owners traffic and engagement tools to make any site social) and MySpace Data Availability (allowing users to port information to other services). The integrating and transferring of social elements is happening everywhere.
In fact, they will eventually become a springboard for other revenue-generating options, such as premium subscriptions, hyper target marketing, and even licensing pacts. The opening of the systems to third-party developers and new applications is rendering extensive mashups of popular sites and services encompassing Twitter, Digg, eBay and Photobucket. For instance, the new Fireball mobile location service integrates Twitter, Upcoming, Google Maps and Yahoo's Fire Eagle to pinpoint the exact location of users' social network buddies --without their knowledge.
Even CBS' $1.8 billion acquisition of CNET is not just a news content play. CNET is among the top 10 most-trafficked sites whose loyal tech readers are their own social network--and it is still struggling with the monetization challenge. It's why CBS last year acquired the music social network Last.fm, social gaming companies are being privately funded, AOL is acquiring Bebo for $850 million, News Corp. could buy LinkedIn, and Twitter's simple interface drives its exploding consumer and business user community.
Still, Madison Avenue, Hollywood and Silicon Valley appear to be stumped over ways to monetize social networks. Media's far-flung players are becoming more desperate to monetize their products and services through virtual connections with consumers and other companies. But it is increasingly obvious that the process of generating robust revenue streams from individual and collective consumer connections will take time. It requires developing credible measurement, engagement and commerce logistics to make social networking and search solid enough to buttress the emerging interactive marketplace. Devising ways to monetize that requires a willingness to redefine business relationships and strategies.
That is the complex backdrop for this week's most recent scurry of deals and moves aimed at giving players a stronger foothold in the rapidly developing social-networking arena--even if they are not sure how much and when the ad revenue returns will come.
In the same week that Google joins the pack with Friends Connect and Comcast brings Plaxo to the small screen, eMarketer takes the usual move of reducing its 2008 projection for social-network ad spending from $1.8 billion to $1.4 billion, citing the difficulty of quantifying and finding effective ways to use such new platforms. And it is not going to improve anytime soon.
eMarketer has also lowered its 2011 ad-spending projections for social networks from $2.7 billion to $2.4 billion. Several weeks ago, News Corp. stunned digital media partygoers with the news that its Fox Interactive Media, home to MySpace, will fall about $100 million short of its goal to reach $1 billion in annual revenues this fiscal year. Google concedes that it has trouble selling ads on YouTube, and Facebook is inching up its ad revenues.
Still, others remain bullish on social networking, which is expected to generate almost half of an estimated $4.6 billion in global enterprise and productivity tool spending by 2013. Social networking is a catalyst that is already impacting the bottom line, even before companies unlock the secret to capturing its advertising and e-commerce opportunities.
It appears that Madison Avenue is finding it more difficult than anticipated to move from static platforms with one-way customer relationships into a fluid, unpredictable and unmanageable interactive marketplace controlled by tech-empowered consumers. Embracing and leveraging those dynamics is a major hurdle to making social networking work.
Even as Google blew past Yahoo in the most recent metrics for the most popular online search this week, some analysts set it up as a market cap successor to Microsoft by 2010. They predict it will ride on--among many other things--the added value to be wrung from social-networking applications.
Google co-founder Sergey Brin provided a voice of reason this week, commenting on efforts to develop the effective technology, formulas for social-network advertising, and campaigns to educate advertisers and consumers. "People are expecting overnight to wake up to a miracle ... but these things take time."