Does Social Media Advertising Work?

Some observers rightly will ask whether "free to use" social networks can survive forever without a clear revenue model of some sort. The general expectation is that viable revenue models can be created using some forms of advertising or marketing by brands hoping to reach their potential customers.

So far, the evidence is mixed, if promising. Reasonable observers will note that the way advertising or marketing messages are handled will be crucial. But lots of major retailers alread are betting that social marketing will pay off.

Telecommunications firms, Web media, retailers, financial and entertainment firms, automotive and health companies are among the companies already making use of advertising or other social network promotional opportunities.

Still, social media advertising and marketing remains a "work in progress." A new study by MomConnection provides evidence on that score. According to recent findings from MomConnection.com, 60 percent of users report having used a social network in the past 24 hours, turning to online communities and social networks for advice, support and connection.

But the survey also suggests that they do not use social networks as a resource when it comes to product decision-making. In other words, social networks are used to share information about products users already have experience with, rather than to choose new products they have not used before.

Moms are four times more likely to turn to their personal offline network of friends and family than online social networks for product recommendations and buying advice.

The study found that social networks are not a channel where most moms are receptive to gathering product information, but rather is largely for entertainment and personal communication.

Still, the results suggest that social networks might be growing in influence. About 24 percent of respondents indicated that they have used Facebook for product information and buying advice, while five percent have used Myspace for product information, while three percent have used Twitter.  

The survey also found that the respondents interact with brands on a surprisingly high level, actively requesting information and resources from the companies whose products they use. Some 81 percent have visited a brand's Web site for more information while 65 percent have signed up to receive a newsletter from a brand.

Some 36 percent have posted a link or joined a fan group on Facebook. Also, it appears that users become important "influencers" once they have formed an opinion about products and services. About 94 percent of respondents report they give advice to other moms in at least one product category.

Advertising Down, Internet Advertising Up, ZenithOptimedia Says

Consumers are saving money by spending more time at home, so media consumption is increasing, particularly of television and the Internet, says ZenithOptimedia Group. That might explain what appears to be consistent performance by providers of multi-channel video entertainment, though there are share shifts occurring.

And though overall advertising will decline globally in 2009 by about seven percent, Internet ad spending should increase 8.6 percent in 2009, down from 20.9 percent in 2008, ZenithOptimedia Group says.

Most of this growth will come from search advertising. The firm predicts U.S.search advertising to grow nine percent in 2009, while classified grows just 1.8 percent and traditional display shrinks 1.8 percent.

Internet video and rich media advertising is growing about 30 percent annually, while Internet radio advertising is growing 29.7 percent. Podcast ad revenue is growing 11.9 percent, but each from relatively small bases. Internet video, Internet radio and podcasting revenues represent about 12 percent of overall U.S. Internet ad spending.

Internet ad growth is predicted to grow at 11.3 percent in 2010 and 15.3 percent in 2011, ZenithOptimedia Group says. The Internet's share of total advertising will grow to 14.6 percent in 2011, up from 10.4 percent in 2008.

http://www.zenithoptimedia.com/about/news/pdf/Adspend%20forecasts%20April%202009.pdf

Discovering Business Models

The problem with discovering business models is that what works for some does not work for all. Back in 1998 and 1999 the stock answer provided by just about any competitive local exchange carrier executive essentially was that the firm in question would get "one percent of a $250 billion market."

These days people ask how Facebook, messaging, collaboration, video or other portals will make any money. The most popular answer is some variant of the old CLEC standby. U.S. advertising currently is about a $153 billion a year business. Portal X will get one percent of that.

Look, it clearly works for four companies: Google, AOL, Yahoo! and MSN. The "four horsemen" get about 60 percent of all Internet advertising. It isn't going to work for most application, communications or portal providers, just as it never worked for most CLECs.

The biggest two "CLECs"--the former AT&T and WorldCom/MCI--threw in the towel in defeat. And those two had more than 40 percent of all "CLEC" revenues between them.

So people assume that fast-growing and useful sites such as Facebook will find some way to make money besides traditional advertising. And there is precedent for such discovery.

Google was equally clueless about its business model, but managed to discover one.
So just because a company has no idea how it will make money, doesn't mean it will not discover a means.

On the other hand, that doesn't mean it ALWAYS will find the answer. And though I'd have to say I am fairly confident Facebook will discover a model, as Google did, that doesn't mean thousands of other sites will be so lucky. Thousands of sites obviously cannot use the Internet advertising model, even if it is fast growing, because most fo the rewards will go a relative handful of companies.

Ad-Supported Calling?

There can be no doubt about the direction of advertising. So if the trend is so clear, it is inevitable that ad-supported calling will get closer attention. Jajah has been trying this in Germany and Austria, for example. Jajah has partnerships with three large media companies, including Bild, Germany’s largest newspaper; ProSiebenSat1, which owns two major German TV stations, and NewsAT, an Austrian station. The partners will spend seven million euros to advertise Jajah’s Internet phone service.

They will point users to their own Web pages, which will have a co-branded Jajah service from which people can make calls. Essentially, the media companies will subsidize voice to build traffic on their sites. Deutsche Telekom, Germany’s large phone company, is part owner of Bild. So, in a sense, DT is kicking the tires to see what's there.

Jajah will keep 50 percent of any advertising revenue that it sells on the pages it shows people while they make calls. It will sell a banner and a skyscraper on each page.

Separately, Globe7 offers a softphone-based approach integrated with video streaming. The play seems to be that the content downloading creates an ad potential. Ad viewing then earns calling credits. The angle here is possibly more interesting than the old "listen to a short ad and then I will connect your call" approach. PC-based or Web-activated sites can show ads on a home page, without disrupting a call.

Internet-Based Advertising Can't Help But Grow...

At some point, retail prices paid for advertising are going to better reflect the share of attention mobile and PC-based Internet sites and services are getting.