Thursday, March 20, 2008

Can Social Networks Make Money

My previous post looked at the growth of online advertising and the likely places for success. The article in The Economist suggests that sites like My Space and Facebook, while becoming an integral part of the online experience, may not be the place to find revenue.

One of the most interesting quotes from the article believes that "it is entirely conceivable that social networking, like web-mail, will never make oodles of money. That, however, in no way detracts from its enormous utility. Social networking has made explicit the connections between people, so that a thriving ecosystem of small programs can exploit this “social graph” to enable friends to interact via games, greetings, video clips and so on."

The article looks at email as a similar business that has yet to find a strong revenue model. My Space has the power of Murdoch behind it, but no one has been able to build strong synergies. Facebook tried to grow an ad model through Beacon but got chastised by its critics and users for invasion of privacy.

As extensions of core brands, social networks can build loyalty and enhance relationships, but it will be fascinating to watch who can prove that there is a revenue model to profit from.

Online Ad Spending to Rise 23% in 2008

I always wonder when I read about advertising spending whether increases in advertising is a result of overall growth, or if these dollars are simply moving from one pocket to another. Prior to online, I paid attention to the rise in cable advertising vs broadcasting and if one was taking from the other. So this growth projection of 23% is great unless the companies that survive on ad dollars are overall seeing dollars decrease from their other pocket.

The writers strike was about getting their fair share from this source of revenue. It seems most of the dollars are actually coming from search...hooray Google. But there is money from online video as well - "-- Rich media/video ad spend is set to keep growing as a percentage of online ad budgets, rising to 18.5 percent in 2012 from 10.2 percent in 2008."

One thing for sure, online advertising is far more measurable. Specific purchase behavior can be tracked and documented to show the ROI. In this new media world, Big Brother is watching. George Orwell was right.