Consumers in control

Social media marketing is the new search marketing, it seems – allowing marketing directors to connect with consumers and deliver their advertising messages in a cost-effective way.

It is no surprise, then, that many social media sites have been snapped up by major corporations. These deals include Rupert Murdoch’s News Corp buying MySpace for $580m (£290m) in 2005, ITV buying Friends Reunited for £175m the same year, Google buying YouTube for $1.6bn (£900m) in November 2006 and more recently, in March 2008, AOL buying Bebo for $850m (£425m).

But digital experts question whether social media sites have yet managed to make the kind of money that would justify such prices. They also point out that Web 2.0 is supposed to be all about user-generated content, social networking, sharing useful information and consumer control of the media space.

Why should consumers let marketers in to their space – or, to paraphrase the title of a book written by Robin Wight, one of the founders of WCRS, 35 years ago, what happens if the pigs refuse to be driven to market?

Rob Kelly, senior publisher sales manager at digital marketing company TradeDoubler, says when it comes to advertisers using social media sites as vehicles for their marketing messages, the biggest problem is “the likes of Bebo, Facebook and MySpace provide users with an extension of their personal lives, and a proactive approach by advertisers can be seen as an intrusion into that personal space”.

He adds: “Effective monetisation of social networking and UGC sites is still a pipe-dream. Most social networks still make the vast majority of their revenue through straightforward advertising sales, without exploring other opportunities offered by the model.”

Tom Hopkins, head of business development for interactive media at Conchango, says too many marketers are still thinking in terms of broadcasting a message to a selected, but still mass, audience. That sort of thinking, he argues, is “from the mass media world – it implies that the customer sits there dumbly while the marketer, using his ‘targeting’, picks them off”.

But social media “is just that – it’s media owned by the social group which has created it, and that group will talk about what it wants to talk about. You can include ads at the start of YouTube movies or on billboards, but for brands to be truly effective in social media they need to find something the social group wants to talk about.”

Mark Iremonger, head of digital at Proximity London, says: “If brands don’t want to be treated like an unwelcome guest in someone’s home, they had better start being either useful or interesting to the home owner.”

Product placement

Most social media sites are already selling display advertising. In addition to that, possible money earners include sponsorship, product placement on Bebo’s KateModern, crunching data on users, charging for delivering Web traffic that provide leads or actual sales – perhaps on a cost per acquisition basis – the sale of original content to other media owners, and contextual advertising.

Plus, of course, users themselves could be tapped for subscriptions, or charged for widgets, applications or other “fun stuff” to put on their profile pages or circulate to friends. They might also shop online, either buying downloadable products, such as music or video, or physical products, with the social media site taking a cut of sales.

Finally, there is the possibility of taking the social media site brand itself and extending it into other areas, perhaps even offline.

Concert promoter

Freddie Baveystock, brand managing consultant at consultancy Rufus Leonard, suggests: “Perhaps the greatest potential for commercial gain exists within the social media site brands themselves and the way they can be developed offline. It’s probably only a matter of time before MySpace leverages its position within the music industry to become a concert promoter – it could earn serious bucks from ticket and merchandise sales, and perhaps even sponsorship too.”

The challenge for marketers is to find a way to be welcomed into social networks. Craig Lawrie, head of digital at Billington Cartmell, argues: “Get to know the audience and the activity of the groups before you head in, introduce yourself by being transparent and provide something of note which enhances the community’s social status or experience of your brand.” An example, he says, is confectionery brand Skittles, which offered games and widgets on Bebo.

Alex Burmaster, European internet analyst at Nielsen Online, says that widgets can deliver enormous brand benefits. He points to STA Travel, which has a widget that customers can copy onto their own PC desktop that counts down to the day their holiday starts.

Social media sites are obvious and effective ways for marketers to distribute widgets, while the sites themselves could charge brands to sponsor widgets or for distributing brand-developed widgets; or they could charge users to download them or use them.

Ben Rachel, head of planning at CMW, has worked on a number of projects marrying social media sites and brands, most recently getting Cadbury’s Creme Egg together with Bebo.

Leverage tie-ups

He agrees that some form of sponsored content can be hugely effective, but stresses that marketing directors cannot regard it as a traditional media buy. “Working with social media sites is like other forms of sponsorship – you pay money to be involved at the start, then you pay more to leverage the tie-up,” he says.

Widgets are not always free, and theoretically could provide a useful revenue stream for social media sites. Jamie Riddell, director of innovation at digital agency Cheeze, says: “Social media sites won’t get much revenue from the sale of one widget or application – but if they shift 1 million a day, the revenue starts to grow. And if they are sponsored, then they could charge marketers to distribute them as well.”

According to Facebook UK sales director Blake Chandlee, there are 120,000 different applications available to Facebook users, soon to rise to 150,000. Facebook, however, does not actually get any revenue from applications. “We make money in one way – from cost per thousand impressions-based advertising,” says Chandlee.

Another apparent way to generate revenue is selling data about the users of social sites and their online behaviour.

But Chandlee says Facebook would never sell information about its users. “The data consumers trust us with is highly confidential and we would never sell it, even in aggregate form.”

Facebook has experienced how protective social media users can be about what they perceive as “their” space, with the furore over the launch of Beacon in the US.

Beacon tracked Facebook users’ online activities (including purchases) on more than 40 participating e-commerce websites and broadcast news about users’ latest buys via those individuals’ newsfeeds to their friends.

More than 50,000 Facebook users signed an online petition against what they saw as an intrusion and the website site apologised and gave users more chances to opt out.

Chandlee says “Beacon was never intended as an advertising platform, even though everyone thinks we were trying to use it to advertise to users. All Beacon did was let people tell their friends what they were doing outside the Facebook arena.”

But he admits: “We probably launched incorrectly, in the sense that we didn’t give consumers enough control. We rectified that.”

Intimate secrets

As Beacon demonstrates, users may be prepared to share intimate secrets with complete strangers, but that does not mean they want those secrets to be used to sell products and services to them or their friends.

Mark Patron, chief executive of digital specialists RedEye, observes: “Things go wrong when marketers think of how they can ‘do things to consumers’ rather than thinking how a customer would behave – something which the recent debacle at Facebook proves.”

Ask customers for their permission and offer them an obvious benefit, and many users will be happy to share data, Patron adds. “Consumers understand that Tesco’s Clubcard gives them a 1% discount in exchange for detailed shopping habits that, in turn, will be used to target individualised offers and personalised coupons.”