Social Media’s Clumsy Ad Model Needs New Moves

Social media advertising has stumbled in its current form, and needs new choreography.

That’s the blunt message that media consultancy Media Link has for MySpace. Media Link has been advising MySpace since August, following a major executive shakeup at the troubled News Corp. unit. That message might as well be aimed at the entire social media landscape, which generates a disproportionate amount of ad impressions but commands such low prices that some in the industry even speculate it could hinder an expected online advertising recovery.

Media Link president Wenda Harris Millard, who’s been directly advising MySpace, said that the site may require a dramatically different approach to advertising—including reducing the amount of ad inventory it serves.

“We’ve been talking to MySpace about two things,” Millard told Mediaweek. “One is that people need to think about creating scarcity. People talk about how you have to monetize every page. You don’t have to.”

Plus, traditional display ads simply may not be appropriate for social media sites, continued Millard. “The notion of advertising in a social environment is by nature intrusive. [That kind] of advertising doesn’t really work.”

Instead, Millard said that Media Link is helping MySpace explore creating several new ad products that are better suited to a social environment. “There is an opportunity for commercial messaging in MySpace. But I’m not sure if advertising is even the right word.”

MySpace should focus what it does best, said Millard, such as serving fans of particular music artists, and somehow exploit that passion for brands.

For its part, MySpace is being careful not to reveal too much about its ad plans. But clearly News Corp. knows it has a challenge on its hands. Besides hiring Media Link, last week the company lured MTV digital sales chief Nada Stirratt to become its new chief revenue officer.

Angela Courtin, MySpace’s senior vp, marketing, entertainment and content, hinted that new ad formats are coming soon, and that the site may indeed reduce some of its inventory.
“Inventory is something that can be dialed up or dialed down,” said Courtin. “We have to be really creative. It’s innovate or die.”

That goes for the whole category—from social media juggernaut Facebook to lesser sites like Classmates and Bebo. Recently, comScore reported that social networking sites now account for over 20 percent of all display ads viewed on the Web. Sellers report that CPMs can be as low as 20 cents on some sites.

Citing that dynamic, last week eMarketer issued a report which indicated that low CPMs may be holding back spending growth. “I don’t think this issue is going away,” said Debra Aho Williamson, eMarketer analyst.

Why? “The challenge is that so many of these pages [on social sites] are pages that advertisers don’t want anything to do with,” said Sarah Baehr, Razorfish’s national media discipline leader. Plus, Baehr added, some brands still won’t touch user-generated content, despite its popularity.

Social networks, particularly MySpace, are a great place for “high reach at a low cost,” said Adam Shlachter, digital practice lead for MEC Interaction. “But a lot of advertisers are wary of just running display ads on these sites. It’s not seen as relevant [to a social environment].
And it’s not seen as effective.”

According to Mike Cassidy, CEO of Undertone Networks, his company deliberately eschews selling social net inventory. “Frankly, we use it as a selling point,” said Cassidy. He’s concerned that low prices on these sites could prove to be a drag on the overall display market as it pulls itself out of the recession. “Unfortunately, you are selling against those prices.”

Another reason those prices are typically so low is that clickthrough rates on social sites are often abysmal. But many would argue that clickthroughs are the wrong metric to measure these sites. “The click is not the most effective way of measuring branding,” argued Andrew Lipsman, analyst at comScore.

That’s an argument that MySpace is also looking to make. Courtin said the company is looking to develop ways to better measure the impact of ad exposures on the site, particularly when those exposures occur in parts of the site where users are highly engaged.

“What about the value of impressions?” said Courtin. “That’s all relative. We have different CPMs on different pages.”

Pricing is probably less of an issue with Facebook, which does sell some remnant inventory through Microsoft, but has mostly focused on more social media-appropriate ads. “We aren’t seeing ad network type CPMs” said Mike Murphy., Facebook’s vp, global media sales.
“Banners, as they were once defined, don’t exist much on Facebook.”

Indeed, Facebook’s spartan ad strategy sounds a lot like where MySpace needs to be: it runs few banners, it hardly ever interrupts its users, and its popular ‘Engagement Ads’—which enable users to fan brands, comment within ads, and share them with friends—leverage the site’s unique nature.  “I’m not sure engagement ads are for every brand in the world,” said Murphy. “But I’ve been surprised at the breadth of brands that can participate.”

“The momentum is behind Facebook right now,” said Williamson.

However, despite reaching over 100 million uniques in the U.S. (according to Nielsen) and claiming 300 million members, Facebook is forecast to bring in about half the ad revenue (around $230 million, per eMarketer) that MySpace will generate in 2009. And as often as users are becoming fans of brands like Motorola, Starbucks, JCPenney and Splenda, there are plenty of ads on Facebook for free credit reports, local dentists and lasix surgery providers.

Some agencies said that many clients are still in wait-and-see mode. “Everyone’s interested in engagement ads,” said MEC’s Shlachter. “But it’s about finding the appropriate way for every brand…and trying to be organic.”

The desire among many brands to be organic on social sites points to another monetization challenge. Many elect to use Facebook (or increasingly Twitter) solely as communications platforms. “There are a whole lot of brands that have pages on Facebook that don’t do advertising,” said Williamson. “Facebook says to them, ‘you can do even better if you advertise.’ They say, ‘why do you really need to advertise?’”