Social Networking Is Not A Business -- But It Might Be Soon

Excellent article in this month's Tech Review by Bryant Urstadt on the business side of social networks. Highly recommended. TR site registration required, but free.

A few tidbits catching my attention:

  • Facebook impressions run 13 to 16 cents CPM. For comparison, our clients in aggregate pay $10 eCPM on Google, and $6 eCPM on Yahoo. The fact FB can't command higher CPMs speaks volumes to how advertisers value those impressions.
  • Regarding the "content adjacency" problem, where ads on the social nets might run alongside content objectionable to advertisers, Chamath Palihapitiya Facebook's VP states that the FB community self-moderates by flagging inappropriate material. Urstadt comments:
    Palihapitiya deliberately or otherwise, may be missing the point: advertisers dislike rude content not merely because it might reflect badly on their brands, but because the people reading such stuff are probably not thinking about buying many things that advertisers are selling.
  • MySpace generated $800mil in annual ad revenue (2007 stat?) Surprising to me, I would have guessed less.
  • Urstadt again, emphasis mine:
    Advertising on Google works because visitors come to Google looking for specific information. If a user who types in "scooter" in the site's search field is hoping to buy a scooter, the keyword results that appear at the right of the search results can be more useful than the results themselves. In social networks, on the other hand, users show up to find friends; ads are, at best, irrelevant to that goal. The click-through rates on social networking sites bear this out. While around 2 percent of Google users actually click on a given ad (and the number is much higher when users are conducting searches for purchasing reasons), fewer than 0.04% of Facebook users do, according to a media buyer's report obtained last year by the Silicon Valley blog Valleywag.
Worth checking out. The article: Social Networking Is Not A Business -- But It Might Be Soon, Bryant Urdstat, July/August 2008 TR Review

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