Google: Social networking pays poor advertising dividends

Google has come out and said something that many in the industry - including I - have long suspected: Social networks are poor advertising platforms. For those who can't get beyond the advertising fetish, here's a critical data point that suggests you'll need to indulge that fetish elsewhere. Whereas search is a great indicator of customer interest, social networks are not. Said Google's CFO:

We have found that social networking inventory is not monetizing as well as we would like.

Of course it isn't. The model for monetizing them should be much different. Advertising is not the be-all, end-all for the web.

Nick Carr thus correctly asks of Facebook:

If Google, News Corp., and MySpace are struggling to monetize social network traffic, one can only imagine the challenges facing Facebook, a much smaller company with less traffic, fewer resources, and, in general, a clientele more resistant to commercialization than MySpace's. In this light, Beacon seems less like a folly than like a deliberate act of risk-taking, if not of desperation.

Indeed. The answer, or one answer, is clear: Facebook needs to leverage the assets it has, or could have. Social trust is Facebook's biggest opportunity, and that trust translates into all sorts of commercial opportunities.

It's time that the web recognized that its commercial opportunities are rich and variegated. Fixating on advertising is the absolute wrong way to monetize social networks, at least, as advertising is currently formed.

One form that just might work is not too dissimilar from Facebook's failed Beacon project, just less invasive and more informative. If I'm buying a new ski jacket, for example, I'd want to know what kinds my friend, Bryce, recommends. I don't want that information forced at me at the point of (his) purchase. Rather, I want to be able to search against it. My own social network-influenced Consumer Reports, as it were. On demand. My demand.

This isn't that hard. It just requires web entrepreneurs to think about what they have (abundance) and what value they can sell against that abundance.

[seanupton]

So effective social networking isn't ad-driven, it's VRM? There's still money in that sort of world because there is still value in connecting people with commerce through effective messages, but I'm not sure exactly how this ends up being delivered or being sold?

[andrewpmk]

It's quite obvious. Social media networks are currently mostly used by young people - in their teens and early twenties. These people have little spending money, and thus there is little demand for advertising.

This could change in the future if older people start signing up to sites like Facebook, or when the young people who currently use these sites get older.

[stevedrobinson]

I disagree. Social networks have one distinct advantage over most online advertising: they know their audience much better. Social networks know who you are, your sex, age, what you like to do, and what types of people you associate with. They are a targeted marketer's dream. I currently manage campaigns advertising on Facebook, Google, and Yahoo, and the degree with which I can target a message on Facebook makes it an extremely appealing medium for the right advertising.