One of the questions that came up last week in Edinburgh
was whether or not social networking sites were really the big moneymakers they claimed to be. In the discussion, what we agreed on, was that the social networking sites had done a good job in doing an "upfront" monetization, with MySpace getting a guaranteed ad deal from Google and Facebook getting a guaranteed deal from Microsoft. However, all the details suggested that on the backend
things were pretty ugly. It's not hard to figure out why. Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren't looking for information about products -- they're looking to communicate with friends. In that environment, ads are seen as an intrusion -- which is the exact opposite of ads in a search world. That explains why Facebook was so focused on its Beacon offering
, which was designed to try
(rather unsuccessfully so far) to make an advertisement about communicating with your friends.
With all that said, I estimated that within a year, advertisers would begin to back away from social network advertising, unless some new, more effective, mechanism was found. I figured it would take about a year, because the mindset of advertisers would still be focused on just getting ads on these "hot properties" and it would take some time before they realized that no one looked at the ads. Apparently, my estimate was wrong. Brands are already staying away. At least, that was a major point
behind Google missing
its earnings estimates. It seems unlikely that this situation will get much better, unless social networks really do come up with a different form of advertising. They need to recognize that simply throwing up ads doesn't work any more. An advertisement can't be intrusive. It can't be annoying. It needs to be relevant and wanted