SocNet Ads Less Effective than Other Web Types

US online consumers who use social networking services (SNS) such as MySpace and FaceBook are less receptive to SNS ads overall, click less on SNS ads (57%) than they do on other forms of web advertising (79%), and make fewer purchases as a result, according to a study from IDC.

The research reveals that social network users use SNS often and for long periods of time during each visit. More than three quarters of SNS users visit at least once a week, and no less than 57% visit at least once a day. During each session, 61% of SNS users spend at least 30 minutes on the respective site or stay logged in permanently, and 38% spend at least one full hour per session (or stayed logged in).

However, this intense engagement with SNS does not translate well into advertising engagement because viewing ads is not one of consumers’ primary motivations for visiting SNS, the study found.

Advertising as it exists on social networks is an odd creature; network-owners try to capitalize on the vast amounts of traffic coming across their pages by slapping on a few contextual ad units or banner ad units from a major provider. The advertisements are really somewhat out of place, and let me explain why. There are two groups of people who buy things online:

• Seekers - Seekers make up the bulk of all online shoppers; they have a specific problem or need that they want to resolve, so they seek out a solution through a service like Google or Amazon. These people are the primary targets of SEM and contextual advertising campaigns. SEM units like AdWords snag seekers right there on the search results page itself, and contextual units like AdSense offer solutions after a seeker has landed onto a non-search engine website (this is often called “the second click.”)
• Opportunists - Opportunists are casual browsers who aren’t actively looking to purchase anything, but some advertisement catches their eye and they start thinking about the product or service advertised and eventually make a purchase. In the online world they typically make a purchase on-the-spot if the opportunity is large enough, or they at least keep the opportunity in mind for when they might need it in the future. This is how traditional banner advertising works, where there is no engine that serves up ads intelligently. Instead they rely on having a large reach (audience) and hope to capture a small number  of opportunists.

Based on the above descriptions it’s obvious to determine what audience social networks are targeting: opportunists. Hardly anybody goes onto a social network in search of a solution; they go there to engage with other members of their network. Going after opportunists alone is a disastrous strategy - the collapse of the first .com bubble was largely a result of advertisers being able to actually measure their online advertising spend accurately, something that was much more infeasible in the offline world, and determine that the leading monetization model at the time, Banner Ad Model, was not generating enough real sales to merit investing in it any further.

Many major publishers who were dependent on Banner Ad revenue were unable to make it once advertisers began pulling out, and thus we saw the .com implosion of 2001. There were obviously other factors that helped contribute to the .com collapse, but the failure of a major monetization model was certainly a large part of it.

Repeating History

Here in 2008 it looks like social networks haven’t really learned their lesson - we’re back to what is essentially Banner Ad 2.0, where advertisers are, once again, dolling out large sums of cash to reach an enormous audience with few people who are actually listening. And like with the first .com bubble, these social networks run with large overhead costs fueled mostly by investor dollars with scant revenue to show for it. Some companies, namely FaceBook, have made strides to try to inject their advertisements into the social activity of its members, but that hasn’t made much of an impact, as this report indicates.

This has me wondering - is advertising a doomed monetization strategy for social networks? Are they simply repeating history?

Please leave a comment with your thoughts.

I don’t think Google or Yahoo! will be following Microsoft’s lead. Google doesn’t need to as a result of its dominance in the paid search advertising market. Yahoo! looks like it might be pulling out from search altogether and moving primarily to content / banner advertising.

Either way, it’s interesting to see some movement in terms of advertising dollars in search, but Microsoft’s move has yet to produce a sizable increase in actual search traffic. If the cash-back system ultimately produces a better ROI for advertisers despite the decrease in reach, we might see an interesting “supply-side” shift in search marketing.

If the increased ROI for Live Search advertisers results in a wider, deeper array of bargains and discounts for Live Search users, we might see a number of frugal searchers migrate from Google and Yahoo! to Live Search. Although marketers typically try to avoid bargain seekers, these users would not be bargain seekers in the classical sense; online “bargain seekers” are people who will rarely, if ever, pay for anything online that they can’t steal or substitute with something that’s lower quality but free. These users by contrast are able and willing to pay for goods consumed online but they simply want better deals.

Should the supply of good deals on Windows Live Search attract searchers away from Google it might create an interesting consumer niche for Microsoft, where in effect Live Search’s audience is smaller than Google’s but its audience is composed of the customers that advertisers value most - people who are looking to buy something right now. I don’t see this happening in the next fiscal year, but if the cash-back system is maintained and if it produces significantly better returns for advertisers then it could emerge as a wind shift in search.

TechCrunch basically made the point yesterday: TwittAds is a bad idea. I wanted to add my two cents from a the perspective of someone who spends a lot of time asking himself “would my company want to buy ads on this site?”

The point of TwittAds is thus: put advertising on your personal Twitter page and hope that your followers click on your Twitter ID, view the ads on your Twitter page, and hopefully execute some monetizable action (like clicking on the ad.) This advertising model indicates a fundamental misunderstanding of advertising from a buyer’s point-of-view.

Seth Godin says thus about advertising in his influential book, Permission Marketing:

From an advertiser’s point of view, the single most important tactic is frequency. Frequency is a simple concept: How many times is your ad presented to a single individual? In practice, though, frequency can create a number of pitfalls.

When advertising agencies measure their campaigns, they look at reach and frequency. Reach is a fairly simple metric. How many different people were exposed to the ad? Frequency, as we’ll see in a moment, involves some more artful measurements.

Seth’s wisdom is still relevant ten years later. Twitter is weak on reach to begin with; the Twitterers with the most followers, like Mr. Scoble, have around 34,000 followers. Assuming that the TwittAd advertisers are trying to target the followers of influential Twitterers running an ad on a single Twitter page, even for someone like Scoble, has insufficient reach to even merit the attention of modest advertisers. The obvious solution to that problem is to place the same ad across a number of Twitter home pages, which I will dissect in a moment.

On the surface Twitter appears to be a perfect mechanism for frequency, at least until you look under the hood. Let’s look at a sales funnel I cooked up:

So where did I get these figures? I made a reasonable estimate based on contextual advertising performance for the final Twitter home page to Advertising Landing Page CTR rate, and the first two rates are determined by my own personal experience with Twitter (I actually read about 1 in every 100 Tweets that I am subscribed to.) I’m not trying to perform exact science here, I’m trying to make a point about how pitifully small a reach of 34,000 is.

So here’s a formula for how we determine the CTR for a particular Twitterer:

Advertising Clicks per Day = Audience * (Number of Tweets Per Day * Average Number of Tweets Actually Noticed by Followers) * CTR from Noticed Tweets to Twitterer’s Home Page * CTR from Twitterer’s Home Page to Advertisment

Let’s plug in some values for Robert Scoble, who is the best-case advertiser that for TwittAd:

Audience	33,482
Avg # of Tweets Per Day	100
Tweets Noticed by Followers	0.01
CTR Tweets to HP	~0.01
CTR HP to Ad	0.01

If you do the math using the numbers that I’ve supplied you learn the Robert Scoble would generate between 3-4 clicks on an advertisement per day. Pitiful.

As Erick Shoenfeld pointed out in the original TechCrunch, the home pages of specific Twitterers are simply not a popular destinations for Twitter users. What Erick didn’t mention is the huge noise problem with Twitter - even if Scoble sent out 100 tweets a day no one reads all of them; in fact, most of them are not read at a level beyond mere skimming.

The other problem with advertising on Twitter is the lack of context of the advertisements - how in the hell do you make sure that the right Twitterers with the right messages become advertisers for the right products? It seems like an impossible challenge to me. Anyone who wants to advertise on Twitter pages is going to have to advertise on more than one, period, and how you do that with any level of appropriate audience discrimination seems infeasible. I guess the philosophy of TwittAd is to take a handful of ads and broadcast it to one amorphous, untargeted audience and hope that the combination of “frequency and reach” can yield enough sales for advertisers to overcome the huge waste of marketing dollars spent on the uninterested portions of the audience.

This is just Web 1.0 advertising with Web 2.0 spoilers - indiscriminate broadcast advertising is ineffective and smart advertisers avoid it. This is the principal reason why the original Web 1.0 bubble crashed - the failure of the indiscriminate broadcast advertising model. Once again Web 2.0 entrepreneurs disappoint me by failing to learn the lessons taught in the first crash.