In an interview published at GigaOM, Facebook CEO Mark Zuckerberg explains the monetization opportunity that his social network site represents:
People go to a content site to see a specific kind of content and will trust those ads relate somehow to it. On Facebook, people are not coming to see content from Facebook; they’re coming to see what other people are sharing, so the most natural analog would be having the ads be information shared among the people. Because so much of our society has some commercial component it seems like there will be a way to both share information and line that up with what advertisers want.
Some amount is happening as advertisers pay to accelerate that distribution of information. The amount they’d be willing to pay is proportional to how much it is accelerated.
So the story is that, on a social network, when enough people are looking at what other people are doing, and the social network blends into that experience ads that relate to what those people are doing, you’ll have yourself an effective marketing platform. That seems reasonable, but I doubt that this is where the true value of a social network lies. In fact, I believe that this model is a poor deal for advertisers when compared to what’s already out there in the online advertising marketplace.
Consider some of the other online advertising models for comparison.
Search is arguably the most effective. Users of a search engine have an intention that they express in the search box. Both ads and “non-ads” – that is, organic search results – are displayed in response to that intent. Either the ad or the non-ad could be an effective answer to whatever question or problem the intent poses. So there’s a good chance that an ad will be selected by the user. For example, if I want to learn about mp3 players, my search produces relevant informational content and commercial content … either could fulfill my curiosity.
Contextual ads on a content site, like a blog or an online newspaper, can be an effective and relevant information path for users once they’ve read or partially read the blog or news article. Traditionally, clickthrough rates on such sites are lower than search engine ads, but advertisers can still get good return on ad spend if they are careful in targeting content sites. Back to our mp3 example, if I’m reading about mp3 players, perhaps a review of a specific mp3 player, once I’ve completed reading that review, mp3-related ads can open a door for me if I’m ready to make a commercial decision.
On a social network site, as Zuckerberg suggests, people are interested in people. There is less of a direct commercial opportunity in this. If I use the mp3 example again, perhaps the best I can hope for as an mp3 player advertiser is to target users who are frequent users of iLike – not exactly a strong indication that they’re in the market for an mp3 player. Or perhaps they’ve set their status to “in the market for an mp3 player” … right.
So I think Zuckerberg has got it wrong (or maybe he’s just not offering up the true value of his platform). There’s limited opportunity in the advertising model he references. The bigger opportunity is in brand building. Having personalities, celebrities, brands, and commercial entities live within the social network universe and use that platform to build relationships with other social network users is the way that these platforms will generate huge advertising dollars.