Making a (belated) resolution to monetize social media

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.

The calm before the widget storm

After a summer where seemingly every article about the web and social media included discussions about widgets as the next big thing, there has been a relative lull in the widget hype during the fall. Given that widgets themselves are nothing new to the Internet, the period of calm should have been expected. Code and applications that can be embedded and executed in web pages have been around since the first page view counters and banner ad tags. More recent examples of “widgets” include Google AdSense, the YouTube video player and Facebook applications. But that is not to say that the whirlwind of widget press should be ignored altogether. The proliferation of social networks, blogs, media sharing sites, start pages, etc., are all indicative of an overall fragmentation of the web. Anyone interested in reaching consumers needs to be where they are, not where they want them to be.  The portability and interactivity of widgets enables the desired connection to consumers to be made simply and effectively. For that reason, and many others, what we are currently experiencing is likely only the calm before the widget storm.


When widgets first got the attention of the media, it was largely because of the novelty of allowing consumers to embed widgets in the same way that they were previously embedded by website owners. Companies such as Slide and RockYou established themselves as early leaders in the creation of widgets for consumers. Other companies, like MuseStorm, Clearspring and Goowy Media emerged to provide applications and services to enterprises for widget authoring, distribution and tracking. Over the past few months, each of these enterprise-facing companies seems to have reached the same conclusion….that an end-to-end solution, including monetization, is the best way to attack the market.


The market for banner ads provides an interesting model for the potential development of the widget market. Ad serving technologies became a commodity over time because they only enabled publishers to distribute and track banner ads. The authoring was left to agencies and the monetization was left to publishers and third party ad networks. The most value accrued to companies like Google, which provided all of the needed capabilities. Given that ad serving platforms are now embedded at most agencies and publishers, the preferred infrastructure for distribution and tracking is largely in place. The successful widget companies will integrate with and complement these existing systems by providing tracking, analytics and monetization capabilities that are unique to widgets. Consumer-facing widget companies will need these same capabilities internally to establish sustainable business models.


The recent monetization partnership announcements by Clearspring and KickApps may be early indicators of the maturation of the widget market and a flurry of economic activity around widgets. Like banners and search before them, and like video and mobile now, widgets are a new form of media that require their own infrastructure and monetization models. The companies that deliver those solutions will be the ones that survive the coming storm of widget activity and avoid being washed away with the widget companies that have not established a firm foundation for their businesses.

Building vertical ad networks to survive

Vertical ad networks have become all the rage over the past few months. The acquisition of Jumpstart Automotive, the pending financing round for Glam Media and the launch of network after network on the Adify platform have all contributed to rampant investment activity in the vertical ad network market. Within the past two weeks, there have been announcements for new vertical ad networks from Martha Stewart Living Omnimedia (home and lifestyle), Reader’s Digest (food) and (entertainment). But the announcement that signaled the peak of the vertical ad network bubble for me came yesterday from NBC and P&G. If was the peak of the e-commerce bubble, does a pets-focused vertical ad network signal the peak of the vertical ad network bubble?      


Historically, vertical ad networks have succeeded against traditional, broad ad networks because they aggregated a defined, highly desirable audience that could be purchased by advertisers through a single source. The focus of the networks allowed them to truly understand the audiences of their publishers and generate higher CPMs. Advertisers were provided with ease of administration and creative guidance for developing highly engaging ads. All of this worked well for the ad networks when there was a single one in each of a few high value verticals and when the only alternatives for publishers were either incurring direct selling costs or turning to a broad ad network. But the recent proliferation of vertical ad networks, and various ad networks in general, may have changed the dynamics of the business for the worse.


When it comes to changing ad networks, the switching costs for publishers have always been close to zero. In a market in which publishers have many ad networks to choose from, the ad inventory simply goes to the network that delivers the highest effective CPM (or provides the highest revenue guarantee). Furthermore, because ad networks don’t control the inventory that they sell, what is there today could be gone tomorrow. When a publisher reaches a certain volume of page views and unique visitors, it’s typically more economical for the publisher to begin selling ads directly. Over time, the ad network is allocated a smaller, less attractive portion of the publisher’s inventory. Further, advertisers look to buy media at scale. Publisher and inventory churn makes it increasingly difficult for a network to build and maintain the critical mass needed to attract campaign dollars from advertisers. In my view, it’s difficult for ad networks to build defensible, sustainable businesses if they don’t address these issues and do more than just aggregate audiences.   


I think that there are several potential strategies for creating a lasting, high-value vertical ad network: proprietary distribution, proprietary targeting, a portfolio of products and exceptional service. Proprietary distribution means either owning a significant portion of the network’s inventory or having exclusive access to it for a lengthy period of time. Google is so successful financially because much of its ad inventory, and hence revenue, is generated by and because advertisers can’t go anywhere else to buy that prized inventory. Proprietary targeting provides advertisers with a unique ability to select specific members or groups within the target audience for receipt of their ad content. When this targeting proves effective, advertisers are willing to pay significantly higher CPMs, which in turn generates more value for publishers. was acquired by AOL because it had developed a novel methodology for identifying which site visitors would be most receptive to the message of a particular advertiser. A portfolio of products allows a network to deepen the relationships with publishers. Publishers are then faced with having to forego value beyond monetization when considering whether to switch to another network. Web analytics, ad serving, content syndication and site search are all examples of services that publishers need, that they value and that could be provided by networks. Lastly, and potentially most importantly, exceptional service matters greatly in what is inherently a people-driven business. Decisions in the advertising business are often made based on established relationships, personalities and perceived commitment. No ad network can survive over the long term without dedicating itself to putting the customer, whether advertiser or publisher, first.


In today’s market, it isn’t enough to attempt to aggregate an attractive audience when your competitors are competing heavily for scale and dollars. My guess is that the majority of vertical ad networks that have launched in the past 12 months will fall by the wayside within the next 18 months because they haven’t established any true, sustainable differentiation. What are your best guesses for which companies will be the, eToys and Webvan of the ad network category?

Will there be a Google of video search?

Over the past few months I’ve spent time with a large number of companies attempting to solve the video search problem.  I think there is plenty of evidence to suggest that the consumer video search and discovery experience could be improved.  However, one issue that has been gnawing at me is whether video search can be a sustainable business.  If video search as a business depends on advertising as its business model, I have my doubts.  I don’t believe that advertising can be nearly as effective a monetization vehicle for video search as it is for traditional search.  From my perspective, there are many issues to be overcome, but some key issues are as follows:

1) Video searches are largely not commercial in nature. When searching for video, most consumers are looking for free entertainment content to be viewed at that moment. Based on the data that I have seen from various video search companies, my guess is that far less than 5% of queries have any commercial intent. As an example, below are the top 10 searches from June 2007 (representing about 28% of all queries) for one of the largest video search companies.

  • paris hilton
  • SEX
  • u2
  • angelina jolie
  • Akon
  • mya
  • sexy
  • ciara
  • t-pain
  • beyonce

Compare this data to traditional search, where Google delivers ads for the 40% of queries that it thinks are commercial in nature.  The volume of video searches that have commercial intent and could be monetized is likely to be limited. 2) Advertisers are afraid of user-generated content.  UGC is still the most highly consumed and available online video content.  Video search results are bound to contain UGC and few advertisers are willing to risk being associated with inappropriate content (e.g., violence, pornography, defamation).  Without appropriate filters and safeguards in place, big budgets are not going to be allocated to video search.

3) There is no standard solution to monetizing online video. CPC text and CPM banner advertising, which have been used successfully to monetize traditional search and webpages, respectively, do not effectively monetize online video. When a consumer is seeking video content, it is easy for her to ignore non-video ads as they are not the media type that she is seeking.  While numerous startups are tackling this problem by developing new ad units (e.g., overlays, bugs, post-roll) and targeting technologies (e.g., speech-to-text, audio analysis, computer vision), advertisers are not going to allocate large budgets until effective, standard advertising units are available in significant volumes. 

I look forward to seeing how the video search monetization problem gets solved.  Given the trends around online video consumption, someone is going to crack the advertising nut or figure out how to use search as the hook for another form of monetization.