Commentary

WebU:Old New-Media Monetization Model

Looking ahead, social media needs to look backward

Do a Google search sometime on the topic of monetizing social networks, and you're bound to get results that include words and phrases such as "pitiful," "the worst" and "users ignore." There's no question that when it comes to making money from ads placed on social networks, the Facebooks of the world clearly have not taken the leap they need in order to achieve a greater revenue model. Despite their considerable unique user reach and growth, redicted ad revenues have been scaled back from original estimates and will grow by only 10.2 percent in 2009 (per eMarketer).


In November, research firm idc released a study that determined not only do ads on social networks have lower click-through rates than "traditional" online advertising, users are also less tolerant of them. And this trend will only continue, as consumers continue to be far too preoccupied with updating their status and finding their next 10 friends to click on a banner ad.


While advertising models have become better at factoring in user behavior for brands, the overall monetization model has far to go. MySpace charges brands a six-figure fee for a brand page (including traffic-driving to the page) and then follows the ad network model of massive volumes of targeted inventory at cheap cpms. Facebook, on the other hand, does not charge for brand pages and, with its engagement ads, allows users to comment, become fans and send virtual gifts. However, where is the real benefit for the consumer?


Simply put: The existing paradigm in the social networking space needs to shift. These sites - with their large followings, engagement and user devotion - are much more like what many of us know as loyalty programs, and should be treated as such when developing a business model for monetization.


If Facebook were an online credit card, how would it monetize its loyal customers visiting the site? Certainly not with a banner ad.

The primary focus of "advertising" on Facebook is boosting participation on fan pages and then encouraging those pages to spread virally through paid engagement ads. These engagement ads differ from the conventional ads because they give the Facebook community the ability to comment on an ad, rsvp to an event hosted by an advertiser, give a branded gift, or become a fan of a brand. And these actions serve two main purposes: generate revenue as these are paid ads, and encourage the viral spread of information among friends and colleagues, which further enhances the community as a whole.


Social sites should experiment with building off the concept of a traditional loyalty program where perks are delivered to users in the way of earned points for providing content and information (points which could then translate into other monetized services via co-marketing opportunities, product rewards or joint partnerships). Many offline products that reached a commodity status, like credit cards and airline travel, reward their users with points beyond just an online "gift" icon. This is a very successful traditional model that still works today, has a familiar feel, and lends itself to a Web 2.0 - or even 3.0 - environment.


There is also room to introduce paid services as well as subscription-type models. Social sites have evolved to a point where value is being delivered beyond the basic "free" networking component, and the consumer tolerance to pay minimal fees for add-on services to enhance their experience is definitely worth investigating.

 

The bottom line with advertising and social networks really boils down to the "You scratch my back, and I'll scratch yours" mentality. In other words: The more an advertiser "gives" to a community, the more the community will give back. The age-old, more traditional methods of online advertising simply won't fly in MySpace.

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