Palsy-Walsy

Shades of 1999! Social networks got hot this summer when both Google and Microsoft announced deals to add search and syndicate contextual ads to the two biggest players in the game, MySpace and Facebook. And sure enough, by the end of last month, rumors were flying about possible acquisitions or investment stakes in both Facebook and YouTube, the online video sharing site with a strong social component. One social network, a Japanese start-up named Mixi, went public on the Tokyo stock exchange in September and made its founder a billionaire within a week.

That's news venture capitalists and investors can use, but what does the rise of social networks mean for online marketers, and specifically direct marketers?

According to some experts in the field, the phenomenon means better access to some young-adult demographics, a lot more real estate for contextual or syndicated pay-per-click ads and a chance to get more customer engagement with a product or service. That is, for marketers who are willing to take the risks involved in advertising on social networks.

The buzz started to heat up in early August with the announcement that Google will provide search services, including AdSense ads, to MySpace, by far the biggest fish in the social networking pond. For that right, Google will pay MySpace owner News Corp. a minimum of $900 million between 2007 and second quarter 2010, as long as MySpace meets certain traffic targets. Beyond that minimum payment, the two will share ad revenue from the site.

MySpace occupies a place of its own in the hierarchy by virtue of its astounding growth over the past year. It now numbers some 100 million members, more than four times the pool it had when acquired by News Corp. in 2005. Traffic to MySpace had increased 132% from the year before, making it the most popular single Web site in the United States, Hitwise reported in July. It now accounts for almost 83% of all visits to social networks.

But other social sites have shown very strong growth in monthly traffic and market share. Photo-sharing sites ImageShack and Flickr increased monthly unique visits by more than 200% during the year ending in July 2006, going from the 2.2 million range to 7.7 million and 6.3 million, respectively, Nielsen//NetRatings reported.

Video-sharing site YouTube didn't even go live on the Web until December of last year. But it now gets 20 million unique visitors a month, downloads 70 million videos daily and held a 45% share of all visits to online video search sites in August, according to Hitwise.

All those eyeballs combine to make up a very enticing audience for online marketers. An August report from marketing research firm eMarketer (prepared before the Google-MySpace deal announcement) estimates that U.S. marketers will spend $280 million on advertising on social networks this year, or about 1.7% of their total online ad budgets. That amount will grow to $1.9 billion and 6.3% of ad spend by 2010.

The ad model is almost totally in play as the sites roll out a range of marketing opportunities to see what will succeed. Some marketers, particularly those in the entertainment sector, are creating profile pages on these sites to promote their wares. Others are buying display ads directly from the networks, or from third-party ad sellers.

Some firms are sponsoring promotions or specific content areas with prominent branding. Still others are seeing their ads delivered through run-of-site placements through ad networks. And of course, search advertising is on the way, thanks to the Google-MySpace deal and one that followed almost immediately after between Microsoft and Facebook.

But how well will pay-per-click ads from the search engine publisher networks fare on social sites? That question remains to be answered.

Marketers should keep in mind, though, that ads on social network sites will be a contextual buy — but they'll be contextual with a difference.

“Search and contextual advertising reach users in very different mindsets,” says Josh Stylman, managing partner at Reprise media. “In the former, it's search and find; in the latter, it's read and absorb.” In search marketing, users are searching with an intention to buy, and the marketer's job is to make offers that fit that intention.

The linkage of seller to buyer is more oblique in contextual marketing, which matches ads not to a search query but to Web content. “In contextual advertising, you may have a user in that frame of mind, but they didn't ask to see your ad; they're not necessarily in active search mode,” Stylman says.

Advertising on social networks could broaden that marketer-shopper gap even more. Visitors to those sites aren't researching a product, and they're not even being drawn to those pages by a demonstrable interest in the content. They're looking primarily for people, and most often to catch up with friends they already know. They may share some interests with those other members — in fact, they most likely do — but chances are they don't share all of them.

“There's a greater leap of faith involved [in ads on social networks] than in most contextual advertising,” Stylman says. “The MySpace and Facebook deals mark a dramatic shift in how advertisers are going to create and execute contextual ads, because some type of transitive logic needs to occur: ‘If I'm reading your page and you like the Chicago Bulls, then I probably like the Bulls too.’” How often that equation proves out will determine how well these social pages work as marketing real estate.

There are other issues to confront before social networks gain wide acceptance as marketing platforms. Debra Aho Williamson, a senior analyst for eMarketer who wrote a report on the phenomenon, points to marketers' natural hesitation about inserting their brands and messages into an environment that's built on uncensored content and free expression. “This is not an environment for the cautious marketers, the ones with 150 years of brand image to protect,” Williamson says. “Some companies are going to be totally horrified by the free flow of opinion that occurs on MySpace and networks like it.” Editorially controlled areas exist on most of these networks, but appearing in only those safe spaces risks limiting access to the broader membership.

Brand hijacking also can be a problem in the community-generated content on these networks, she points out. “A lot of member sites feature Pepsi brands or product images, but which are officially sanctioned by Pepsi? It's very hard to tell. And I'm sure you could find pages on MySpace that show Burger King in compromising situations.”

Seb Bishop, president and CMO of MIVA, which runs its own contextual ad network, says that performance ads in communities such as MySpace might need an overlay of demographic targeting to make them truly relevant — a problematic need, given members' privacy concerns.

“How will [Google] actually display the right ad to the right user at the right time on MySpace?” Bishop asks. “You've got to make sure that you have that information in that user profile, which is very difficult to get, thanks to the likes of [New York State Attorney General Eliot] Spitzer. But without that demographic profile information, it's going to be a challenge to make sure the ads convert as well for their advertiser base as those on the core Google network.”

Stylman adds: “Is it possible to deliver targeting data for these networks? Definitely. Is it practical? I'm not certain. Significant privacy concerns are going to need to be factored in. There's too much at stake for these companies to risk alienating their user base over delivering what might or might not turn out to be more relevant advertising.”

A Not-so-Small Group of Friends

Selected social networks to watch