The online social networking universe presents a tempting pool of data for advertisers to use in order to improve their targeting techniques. The rise of Facebook and other social destinations means that users are revealing their connections, their influences and tastes like never before. Information like this is obviously a potential gold mine for marketers.
One particular social networking technology has already changed the way we communicate, how businesses operate and how connections are made. Its adoption has been massive and global. It is, of course, the telephone. Amidst the promises of Facebook and Twitter to fundamentally change the way people connect, it can be instructive to remember that the phone is arguably the oldest social networking tool around, not to mention the most successful.
That’s why clues to how online social networking will change the face of advertising lie in observations of telephone use. In 2004, Chris Volinsky from AT&T Labs Research and Shawndra Hill, a New York University grad student, plowed through reams of the data AT&T collects on phone use. Calling patterns revealed to them that there was a direct correlation between the connectedness of consumers and their purchasing habits. More specifically, consumers shop quite a bit like their friends and are more likely to respond to marketing messages from a brand a friend uses. How likely? Five times more likely.
These findings are among the factors encouraging some marketers and ad executives to believe that the next wave of Web ad targeting lies not in tracking user movements across Web sites but, instead, in mining social networks for the social tissue that connects consumers with their friends and family. With this data as the starting point, the bet is that ad messages can become significantly more relevant and therefore effective. It also could contain the answer as to how social-networking companies like Facebook can turn their huge, active audiences into thriving, ad-supported businesses. In short, the value of social networking platforms might not be on the ad placements running there, but in the data they can collect about consumers’ connections that can then be used to fine-tune ad messages on their sites and beyond.
Social targeting is part of a larger trend in online advertising that is seeing the focus shift away from content to audiences. Put simply, advertisers and agencies are less interested in using content as a signal to attract and identify their target audience. The Internet makes it possible to collect information on habits, demographics and friend networks to find specific audiences irrespective of the content they happen to be consuming right now. Advertisers are seeing the power of combining their own data on customers with that collected by others online to find their desired targets. Some call this a “people, not pages” approach.
Whatever the name, the method threatens an upheaval in the online world, which until now has in large part mirrored the traditional publishing approach of attracting an audience with content and services, then selling access to it. The problem with this model is that the online world contains a stupefying amount of content. As a result, generic ad impressions have literally become a dime a dozen, and prices for display ads have plummeted accordingly. But while the abundance of cheap ad inventory is a predicament for publishers, it’s an opportunity for advertisers — especially those armed with consumer insight.
An illustrative case is that of Media6°, which launched a new marketing analytics platform late last year. The concept was promising enough to lure former top Microsoft ad executive Joe Doran to sign on as CEO. Nearly $20 million in venture funding soon followed.
With most behavioral campaigns, advertisers go hunting for their audience based on the content they’ve consumed online. A user who visits a car site repeatedly, for example, gets filed in an in-market car-buyer segment. Another user who’s fond of gadget sites gets flagged as a tech enthusiast, and so on. According to Doran, such methods are powerful, but they’re not enough. Doran acknowledges that the most powerful tool marketers have is re-messaging existing customers. The problem with this method is that the pool of prospects is too small.
Birds of a feather
Media6° aims to adopt the approach implied by the AT&T research and apply it to online advertising. It starts with the retargeting approach that advertisers have found so effective: Re-messaging someone who has either bought from them, visited their site, or interacted with an ad. But the problem remains that the advertising has to generate demand among consumers who may not even know about the product — and that’s where the social data comes in. Media6° takes an advertiser’s customer data and links it to social user information it licenses from social networking sites. In effect, its technology matches a prospect with five of his or her close connections. This synthesis can quickly transform a retargeting campaign that would’ve reached 1 million prospects into one that reaches 8 million to 10 million. As Doran puts it: “It’s getting back to the old adage that birds of a feather flock together.”
The approach has proved promising. Media6° has inked partnership deals with both Havas and iCrossing. Havas is creating a custom social targeting network it can use for its clients’ brands. iCrossing has run several campaigns with Media6° and in some of these saw eye-popping improvements in clicks, according to Adam Lavelle, chief strategy officer at iCrossing. For one financial services client, conversions increased 167 percent. “There’s this sense of tribes,” says Lavelle. “As much as we think we have a diverse set of friends, the truth is they’re a lot like us.”
Lotame and 33across are among the other companies aiming to mine social networking data for advertisers. Lotame attempts to use social data to get at influencers. It trolls social networks, blogs and message boards for users who have created content about specific topics. Then it expands the circle by adding in people who consume that user-generated content. Finally, it adds people who look like those content creators and consumers. According to Lotame CEO Andy Monfried, this approach has the advantage of gaining strength over time, whereas traditional behavioral targeting suffers from a short shelf life. Monfried points out that a user visiting auto-related sites obviously won’t be an in-market car buyer forever.
Founded by Eric Wheeler, former CEO of Neo@Ogilvy, 33across has deals in place with social networks such as Meebo to acquire information on communication patterns. It looks for signals in how consumers interact and tracks those with whom they exchange instant messages or virtual gifts. On its own, this information is essentially worthless. But when looked at en masse, Wheeler contends, it begins to form a rich picture of the ties that bind consumers together within interlocking networks.
Wheeler maintains that the promise of behavioral targeting — pioneered earlier this decade by companies like Tacoda and Revenue Science — has just scratched the surface. That’s especially apparent as the Web itself has evolved from a collection of content sites to a set of Web services. As a result, Wheeler says, the old methods of targeting will continue to lose potency. “There are massive pools of data that are untapped,” he says. “In and around social, there’s a massive amount of data that’s wildly predictive.”
In light of these shifts, major social networking destinations such as MySpace and Facebook are not sitting still. MySpace is scraping data that is used to build profiles of users as part of its Hypertargeting ad product. The company has constructed a network with News Corp. sites to show ads using the information. Meanwhile, the industry awaits Facebook’s move in this area. Up until now, Facebook has concentrated its ad efforts around high-cost engagement ads and its self-service platform. But the company is widely expected to roll out an ad network soon, particularly after it began allowing third-party sites to tap into its social graph through Facebook Connect, which lets users sign on to other Web sites with their Facebook identity. “It’s not your 5,000 friends on Facebook” that are important, says Wheeler. “It’s actually the 300, 100 or 50 people you’re most connected to.”
Hanging in the balance of all these efforts is the issue of privacy. Companies like Media6°, Lotame and 33across all comply with industry standards and do not collect personally identifiable information. Yet the advertising industry is bracing for tighter regulation of its data practices under a new administration in Washington. Behavioral targeting has already been the subject of congressional and regulatory hearings. Earlier this month, the House of Representatives summoned executives from major online companies to a hearing to discuss their data collection practices. New rules are widely expected. On June 4, the Federal Trade Commission and Sears announced that they had reached a “consent agreement” following FTC charges against the retailer that it had gathered detailed information from customers about their connections and shopping habits without the consumers’ consent. While this case was primarily about how early and how clearly customers were informed about the data that was being collected, the worst-case scenario is that legislators may dictate that all third-party cookies need to be opt-in.
In Monfried’s view, such a mandate would prove fatal for ad networks that glean information on user habits indirectly. “If they say you have to opt-in for third-party cookies,” he says, “that will destroy a $1 billion industry.”
Many ad buyers are maintaining a “test and see” approach, since it’s unclear whether behavioral data derived from online social networks will supercharge ad performance or merely provide incremental improvement. “The jury is still out,” says Eric Porres, a partner at New York digital agency Underscore Marketing. “Hypothetically, it makes a lot of sense.”
Ultimately, social targeting will most likely join other methods and become part of an ever-expanding marketer’s toolkit, according to Dave Morgan, founder of Tacoda and a backer of 33across. “It’s another layer of valuable data beyond behavioral, demographic or contextual,” he says. “The real key is not just peeling another layer off the onion. I’ve got to believe as these companies get more sophisticated they’re going to find areas where one plus one equals three or four or five.”