Response to Economist article on social networks

Hmm, interesting in light of IT Counts..

At InternExperts, we’re frequently asked by our clients about advertising opportunities on social networks, particularly facebook, and to a lesser extent, MySpace. This Economist article echoes the increasing doubts the industry is having about whether these large social networks can be monetized effectively in a broad scale. We share these doubts and generally steer our clients away from these high-reach, social networks.

One of the most promising Internet trends in the past five years has been the increasing focus on peer interactions and the increasing ease at which loosely-coupled social, political, and economic interests and be identified and linked. This is one of the fundamental benefits that Internet technologies offer. But somewhere along the line, we became fixated with the current notion of a social network. Since many brand advertisers require mass-market audiences (i.e. “reach”) to make effective use of ad budgets, these two concepts were linked and just assumed to be the next great business opportunity. From our perspective, there are many ways to enable people and consumers to share information and opinions among like-minded peers. We are only in the first of many product cycle iterations of social network concepts and very early in the learning-curve of how to effect social interactions in a compelling way, much less figuring out how to monetize these interactions. Early experiments frequently fail, but our learnings from these failures is critical to ultimate success.

We are beginning to conclude that these large-scale generic social networks are not effective for most advertisers. These networks are generally focused on social interaction with limited economic intent. It is difficult for advertisers to inject themselves into the discourse without appearing self-serving and intrusive.

Some opportunities are emerging for advertisers, though, on social networks. These networks reflect the next iteration of social network models. Typically, they are more specialized, niche-focused with passionate, active participants. Successful examples of these social networks are often not standalone, but well-integrated into an existing brand, or “mid-tail” vertical website. These sites may not offer the reach of a facebook or MySpace, but the audience is highly relevant and engaged.

A good example in the US is with the DIY cable network (part of the Scripps Networks media conglomerate), which focuses on home improvement projects. They have successfully incorporated social network capabiliites (using KickApps’ system) and have created an imaginative and highly-interactive forum for their viewers to share and learn from each other’s home improvement projects. It’s also been a commercial success as they have successfully sold ad inventory within the social network area, at a premium CPM rate.

The adage that “everyone is passionate about something” holds true for these niche, social networks: They may suffer from limited audience reach, but they can offer advertisers a high-quality and engaged audience. So, while we share The Economist’s generally dim view of the current generation of social networks, InternExperts remains more optimistic about the commerical opportunities for future iterations of the social networking concept.