The Digital Lookout

A number of recent articles have suggested we may be heading for the second web crash.  Most of these theories are base don the inflated prices being paid for barely profitable companies because they fall under the category of “social media” or because they are the latest phenomenon on the web.  Others are quoting the fact that advertiser supply is outstripping demand and many websites are being left with unfulfilled inventory.

But does this signify the beginning of the end? I don’t think so.  I’m not saying change isn’t around the corner, but at the end of the day many companies are yet to fully embrace the potential of the Internet and so there is still growth on the horizon as far as I can see.  I agree with the comments about inflated prices, Google is unlikely to ever recoup the $1.65 Billion it paid for Youtube unless it can come up with a more innovative way of monetising its traffic.  Similarly, although it is a profitable network, Microsoft paid a massively inflated price of $240 million for a measly 1.6% share in Facebook which it will never see a return on (in my humble opinion).  But this does not necessarily mean that we are seeing a repeat of the dot com collapse.  For a start, Google and MSN can afford it, they have VERY large warchest built up from years of successful ventures.

More likely, for me, is that we will see a fall in the ad prices demanded as inventory grows and needs to be fulfilled.  This may mean the demise of some smaller players in the market but those with a strong legacy and a solid proposition will survive and continue to prosper.  In any industry you are at risk unless you have a solid offering and the Internet is no different, just because a few bedroom companies go out of business doesn’t make it the end of the Internet!

All of this can only be good for advertisers as the market levels out, and potentially dips a little, so will the prices.  Bring it on I say!

Just as people are getting to grips with the so called web 2.0 phenomenon already there are people within the internet market touting the arrival of web 3.0! hang on, what happened there? did I miss something?

Apparently, where as web 2.0 was about engagement and interaction, web 3.0 is the “semantic web”, where computer intelligence interprets information without use intervention.  An example given by Ruth Mortimer of brand strategy, is that of search engine spiders and how, with the emergence of web 3.0, will be able to interpret context and meaning of text within a page rather than simply looking at code without meaning, hence giving a more sophisticated search result.

But where did web 2.0 go? I think there is a real danger here of people getting ahead of themselves and predicting the future before theyve mastered the present.  Many companies are yet to embrace the web 2.0 ethic (and some even the basics of online!) and to go around touting the revolution is scare mongering in the extreme unless it is given some context.  My advice to companies reading these articles would be to look at your webstie from a customers point of view, decide what they would want to see, what they would want to do and provide this functionality.  If you get the basics right to start with and put in place an infrastructure solid enough to support it you will be in a strong postion to embrace whatever new technologies are around the corner.

So how do you monetise the social media trend? a questions which people will be asking themselves in light of the growing phenomenon and the convergence to web 2.0 technology. In my eyes the real question is “how do you monetise social media without putting users off?!” If people start to see social networking sites becoming more and more commercial they will very quickly jump ship. people use these sites to interact, not to be sold to and if pages begin to become plastered with ads this will make users move on to the next site which has become flavour of the week.

there is undoubted potential held in the targetting options availale through social networking sites and I believe this is the tool which will bring success if used correctly. Noone minds seeing ads if they are relating to something they are looking for at that point in time. Think about it, the ability to show and ad for gifts when you konw it is someones partners brithday in the coming weeks, or an ad for a dating site around valentines day only shown to single people who arent in a relationship. This is where the real strength lies in my eyes and if it can be harnest then the money will follow.

Social Network Ad Scramble
APRIL 19, 2007

With fierce competition, sites explore new ad models
Social networking buzz belies an impending sector shakeout, according to In-Stat’s “Social Networking: Finding Friends Online” report.

“In order for a social networking site to be successful, it must attain a critical mass, and competition is fierce to attract new members,” says Jill Meyers of In-Stat. “So far, sites have focused their attention on a younger demographic, which is finite, fickle and limited in expendable income.” Ms. Meyers says Baby Boomers are frequently overlooked when it comes to social networks.

MySpace’s demographics include plenty of wage earners at this point, and Boomers have social networks like Eons.com, but the In-Stat report raises an important question: How can social networks best monetize their memberships? eMarketer estimates that 2007 ad spending on MySpace will outstrip spending on all other social networks combined, so competition will be fierce.

One possibility is selling user data, according to In-Stat.

“Each social networking site collects a plethora of personal and demographic data on each member,” said Ms. Meyers, “and while selling these data to target marketing groups may be unappealing to site members, it may be the best route to profitability for site operators.”

Some social networks are still having trouble just getting their sites to grow. comScore Media Metrix data reveals a range of visitor growth of anywhere from 1177% (Sconex.com) to -40% (LiveJournal.com).

Even Microsoft is offering advice on how to increase social networking ad revenue. The Microsoft Digital Advertising Solutions Group commissioned a Metrix Lab study of how social networkers use the sites. The study concluded that creating brand profiles (spaces) that can be forwarded to friends is effective, with a quarter of social networkers posting views on specific ads and a third forwarding spaces, ads or links.

eMarketer senior analyst Debra Aho Williamson says that the time for branded profiles is probably coming to a close.

“The notion of creating a MySpace ad profile page and collecting friends was popular in 2006 but will likely give way this year, as users tire of collecting ‘friends,’” says Ms. Williamson.

Third-party companies are also developing sophisticated modeling software to parse the things people write on their profiles and match ads accordingly.

However, there is a risk that innovative ad models like these will get shelved in order to give advertisers something they’re already comfortable with. MySpace sells “roadblocks” on its home page and even uses old-media speak to explain why advertisers like being there: “Marketers are really interested in the one-day cume they can get from the home page of MySpace,” Fox Interactive Media told eMarketer last year.

While such things will generate revenue, they fall short of the promise of the “one-to-one-to-many” nature of social networking.

For an in-depth look at social network ad spending, eMarketer Total Access subscribers can read the Social Network Marketing: Ad Spending Update report. If you would like information on subscribing, click here.