Can Social-Networking Sites Make Money?

The point of the conference was clear enough. As Kara Swisher, one of the panel moderators, joked on her blog: "I'm in search of the elusive profit, which I don't think I'm going to find."

Almost every player in the game was represented: smaller companies that sent their CEOs, like Alex Blum; investment banks that wanted to take them public; and companies like Yahoo, AOL, and Fox Interactive Media, which were in the market for acquisitions. (Facebook sent no one.) "This is a huge conference," Blum said. "All the people we work with are here."

But they didn't seem very engaged. Audience members were jumpy, posting updates to the micro­blogging service Twitter, checking e-mail, reading blogs, dipping into the newspaper, and--occasionally--listening. Specific problems addressed in panel sessions quickly sorted themselves out into a general problem and a general response. People weren't paying attention to the ads (as, indeed, people at the conference weren't much paying attention to the panels). One panelist, Seth Goldstein, put it this way: "Right now, 'social' advertising is anything on a social-networking site that users are pretty good at ignoring."

Goldstein should know, since his company, Social Media, sells advertising linked to the applications developed for Facebook and MySpace--products like Scrabulous and Compare People, which are hugely popular among the sites' users. "The trouble," says Goldstein, "is we're putting ads up in front of users, where they can ignore them. We've got to get them between users."

Goldstein's comment had the air of a slightly worn sound bite, but it did acknowledge a problem that outside observers describe more bluntly. "It's a really bad place to advertise," Jason ­Calacanis, founder of Webblogs and Mahalo.com, says of social-­networking sites. As he wrote in an e-mail, members of social networks "are busy in conversations and don't want marketing messages."

Compare the situation of social networks with that of Google, which manages to make money putting ads in front of users.

With about 140 million unique visitors per month, Google earned $16 billion in 2007, largely from ads that people did pay attention to. (It may bear mentioning that Facebook recently hired Sheryl Sandberg away from Google, whose phenomenally successful ad program she had led.) Google's AdWords auction sells ads on a cost-per-click basis: advertisers pay not for a thousand viewings but for each individual click on a particular keyword. Advertisers choose how much to spend over any period of time, and they can influence the placement of their ads by paying more. Bids vary according to keyword, of course, but they were averaging around 70 cents per click in the first quarter of 2008.

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