Making Money From Social Ties

Sept. 18, 2008— -- Social networks might be popular, but the industry is struggling to find a way to turn all those users into a big payday. This conundrum is the focus of industry executives gathered at the Social Ad Summit in New York this week, and while no company has yet found the perfect solution, advertising campaigns that make far better use of social-network functionality are starting to offer hope of richer returns.

According to Michael Lazerow, founder of social-advertising company Buddy Media, 37 percent of adult Internet users (and 70 percent of teens) in the United States use social-networking sites regularly. Meanwhile, less than 1 percent of all digital-advertising budgets currently flows to social-media sites. Share of advertising investment might be slim today, but many executives are optimistic about the future.

"It seems a little like the search industry was in the mid to late '90s," says Martin Green, chief operating officer of instant-messaging company Meebo. During this period--before Google developed its lucrative search advertising model--many search engines found it hard to make money. But search engines are, of course, very different from social-networking sites.

Someone using Google may very well be in the right mood to buy something, but people visit social sites to spend time with their friends. Mike Trigg, director of marketing for the social network hi5, says that advertisers have to ask whether an ad campaign resonates with the reasons why users come to social sites in the first place. "The campaigns we're seeing have the most success are very interactive," Trigg says.

To exploit this, advertisers are turning to social-network programming tools like Facebook Platform and OpenSocial. Buddy Media builds applications for advertisers that are a far cry from simple banner ads. One Facebook application, RUN-Dezvous, created for sports-shoe maker New Balance, is a running game that encourages users to challenge their friends to a virtual race.

Points earned through the game can even be converted into credit toward a pair of the company's sneakers. Another application, Launch a Package (an advertisement for FedEx), lets friends share large files by "flinging them" to each other using a gamelike interface.