Many new ‘friends’ to be made online, but what about dollars?
Social network websites are booming. If only they could turn a profit.
They like to meet, chat, make friends and business connections. They post photos and videos. They share their passion for a celebrity, hobby, or cause. But what they usually don’t want to do is shop.Skip to next paragraph
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Visitors to social network sites represent a lucrative market. The largest, MySpace, can claim 73 million users in the United States alone. And No. 2 Facebook has 37 million, according to ComScore, which measures online activity. Fast-growing Facebook alone recently was valued at $15 billion.
But so far those impressive visitor numbers have yet to translate into a financial bonanza for the sites. While observers agree the potential is there, they also say that the very nature of advertising and marketing may have to evolve if it is going to capture the attention of people who are looking not for goods and services but for each other.
Last spring, eMarketer, which studies advertising on the Web, downgraded its ad sales projections for both MySpace and Facebook by more than 10 percent for the fiscal year that ended June 30.
Even Google has failed to extend its golden touch to social-networking sites. In 2006 Google paid MySpace $900 million to place ads on its pages. The search giant also operates its own social network, Orkut, which has been growing, especially outside the US.
But in a February call with financial analysts, Google cofounder Sergey Brin conceded that the investments “didn’t pan out as well as we had hoped.... I don’t think we have the killer best way to advertise and monetize the social networks yet.”
Neither has anyone else, apparently, even though millions of people worldwide are spending more and more time on these sites.
“It’s been a huge disconnect between traffic to social network sites and revenue,” says Debra Aho Williamson, a senior analyst for eMarketer.
The challenge is almost hard-wired into the business plan, says Gary Stein, director of strategy at Ammo Marketing in an e-mail. “Although you’ve provided the infrastructure, the network and all the interactions belong to the members,” he says. “That is, they feel like the space and the networks are theirs, and are very uncomfortable with you, as a company, taking too much advantage of it.”
Conventional “click on me” ads haven’t been seeing the same success they often do on search engines such as Google.
Mark Brooks has placed ads on MySpace and has been “amazed” at the low response rate, even on large, well-placed ads. The veteran marketing consultant says the puny results were almost “unbelievable.”