The Biz: Play Russian Roulette

Jim MeskauskasI don't care what part of the media business you're in - print, television, out-of-home, you name it. And I don't care if you are planning it, buying it or selling it. Whatever field of media you work in, wherever you are, you've heard of it: social networking.

Social networking is the term given to the kind of media properties that facilitate mediated communications with friends and acquaintances through an interface that is more or less a personal Web site. Social net properties include everything from Flickr for the digital photo set, to Twitter for the propeller-head set, to MySpace for the semi-cool kids, to Facebook for pretty much anyone with a computer, fingers and the breath of life.

All the talk about social networking has worked the literati of the digerati into a sort of frenzy. Depending on who you read or listen to, social networking as a vehicle for advertising is anything from the greatest thing since Ramses II advertised his triumphs on obelisks over 30 feet high to just what is needed to truly distinguish interactive advertising from the rest of media.

But a few voices have been heard cautioning against too much irrational exuberance over what it is that social networking is supposed to promise.

In November of last year, Maurice Lévy, the CEO of Publicis, made comments about the media marketplace's race for online media dollars that were deemed, by some, to be way off the mark. In one statement, he described Microsoft's recent investment of some $240 million in Facebook as "insane." He called the deal unbalanced, relative to the potential advertising value of the social media marketplace. He stated that he believes that the investments in online social networks have yet to be proven by practical ad models.

This raised the ire of a good many digital and online media businesspersons.

But when a smart, experienced and "mature" businessperson in a particular business makes an observation, just because he probably doesn't know how to download his own e-mail onto a BlackBerry doesn't mean he doesn't know what he's talking about.

There are two issues raised by Lévy's comments:

  • Opportunities for advertising outstripping demand
  • Opportunities for advertising not supporting the valuation of those opportunities

Regarding the first, the issue isn't that lots of small budgets can't produce significant revenue for an entity willing to accommodate them (à la Google).

In order to own the revenue that a long tail portends, one must hold the whole tail to make it worth the effort to even grab at the tip of it. Regarding the second point, Lévy is also right. Facebook will have to monetize the opinions of its members to magnitudes that run into the googols in order to ever realize their own valuation of $15 billion. This is an awfully high value for a company that isn't really generating any revenue.

Microsoft's investment will only be a real gamble if there's a chance that A) Facebook actually becomes more valuable to someone else before it generates the revenue to justify it (aka the greater fool scenario); B) Facebook actually generates the revenue to justify its valuation (aka the earnings scenario); or C) possession of Facebook's assets, even only a percentage of them, lends Microsoft's other assets enough lift in perception of value to pay for the investment. Only the chance of one of these scenarios coming to pass is necessary for Microsoft's action to be deemed a gamble (win, lose or draw). Lucky for Microsoft, it's got the resources and the demonstrated longevity to be in the market for an investment that may not pay out for several generations.

But think of what Lévy implied about Facebook and the larger market this way: Even if a lot of people want swampland, it doesn't mean the land ever becomes something other than swampland. During the Tulip Bulb Frenzy of 1637, while tulip bulbs were priced by weight in the same fashion as gold, those bulbs were never actually gold.

None of the issues being raised by the community in response to the rise of Facebook actually speaks to the validity or effectiveness of myriad advertising opportunities coming up to bat (or hoping for a place on deck). But sometimes the business of marketing is more important than the marketing of business, and the people responsible for paying attention to those two ends aren't usually the same.

Jim Meskauskas is vice president and director of online media at ICON International. (

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