Looking back on 2007, I think that there is no debating that social media and user generated content were important components of the overall online media market and that they will only be increasing in significance over the coming years. After all, it has been fairly widely published that social media properties account for somewhere between 20% and 30% of all page views online and nearly 45% of all time spent online. However, advertising spend on social media is less than 2% of total online advertising expenditures. The poor performance of the monetization models that have been attempted to date is well documented. But I believe that there are a few models that are emerging that have the potential for success because they may do a better job of engaging and targeting the right audience. Of course, more compelling advertising creatives, specifically designed for the social media environment, are as important for engaging consumers as is the monetization approach.
Here are a few models that I hope to see being tested by startups over the next few months. The models have potential for all types of social media sites, including social networks, media-sharing sites, virtual worlds, etc.
– Leveraging the various types of data available from a social media site to target audiences, rather than context or page views, on the site. Clearly, the content alone from social media sites hasn’t been valuable enough information on which to base ad targeting. But combining context with other data, including user activity, demographics and geography, and potentially even sharing that across social media sites, could yield strong results for delivery of advertising, commerce and content.
– Consumer endorsement of brands, products or content that begins by providing them with value from and control over the messaging initiated by them and their activities. Widgets and RSS are powerful tools to be used within this word-of-mouth-marketing model, which helps advocates and influencers spread the word about the things with which they associate themselves.
– Mining social media to better target audiences on non-social media properties. The participatory nature of social media makes it an incredibly rich platform from which to extract targeting data that is unavailable elsewhere on the web. This provides a unique opportunity for social media sites to share that data (in a privacy-friendly way) with other web publishers so that value can be generated for both groups.
I expect 2008 to be the year in which clear monetization models emerge for the social media properties that experienced fantastic growth in 2007 (eMarketer has one or two forecasts of its own). My somewhat belated resolution is to support those companies that are taking innovative approaches to generating sustainability for a thriving, important and exciting medium.
Venture Generated Content 
Great points Satya. The biggest issue w/monetizing social networks at scale IMO is the limited ability/context for consumers to express commercial interests and purchase intent. The user data can help marketers understand WHO the audience is (demo, personal interests, etc), but does little to tell them what the user is in the market for NOW. The “time” piece of the right message/person/place/time equation is missing.
Your comment on ‘mining social media to better target audiences on non-social media properties’ is interesting. I actually think there’s more value in the reverse — using data from non-social media properties to target ads on social networks. User activity on sites that more explicitly capture commercial interests can be pushed back to the social network to target these users, regardless of the content/context of the social media page. Of course whether the users will notice/care when they’re throwing sheep or looking at pictures remains to be seen.
I agree with you regarding the expression of commercial interest. Collecting the right types of data from activity on social networks may give more insight into commercial interests. Also, finding ways to allow consumers to benefit from explicitly expressing commercial intent may be an interesting way to address this issue.
Using non-social media data for social media sites is already being tryed by the existing behavioral targeting networks and other third parties, which is why I didn’t highlight it as an emerging model. The value of that type of targeting is still up for debate on non-social media sites, let alone on social media sites that are, as you correctly point out, less commercially-oriented in terms of user activity.
Hi,
very inspiring analysis.
What do you think of this new trend in trying to add micro-advertising in to the widgets (because they can be shared) instead of advertising in the “hosting page” (that is where the user comes daily) ?
In general, I think that there is great potential to in-widget advertising, but the key will be somehow creating value for the user so that the advertising is consistent with the experience he or she is seeking from the primary widget content/activity.
Pingback: Lotame gets big funding from Battery Ventures | Startup Addict Musings
Pingback: Online Advertising 101 - For Web Site Startups | The NWEN Blog