As someone who has been tasked with monetizing social media continuously since 2005, the single most important thing I've learned is this: The biggest problem with monetizing social media is that the content is too engaging.
It sounds crazy, but it's true.
Through years spent working to monetize photo sites, video services and social networks for Yahoo and News Corp., I've learned the hard way. (Details below.)
As a result, conventional online advertising -- the publishing model with ads placed adjacent to the content -- feels invasive in social-sharing settings.
And consumers do their best to ignore it. In fact, the more engaging the content, the more consumers ignore the ads.
And the reality is that social media is only getting more engaging.
It's starting to look a lot like TV, where consumers tune in based on big personalities and the content they create -- be it comedy, controversy or catharsis.
In social as in TV, the most engaging content becomes the most popular content. And the popular content with the largest audience attracts the most ad dollars.
This would not be news to anyone that works in the entertainment business, where movies, TV shows and music videos are increasingly funded by product placement.
By conservative estimates, product placement is used by two-thirds of major U.S. advertisers and is present in 80% of TV programming.
From BMW replacing Aston Martin as the car of choice for 007 to Cisco and Dell powering CTU over eight seasons of "24" to T-Mobile rolling out the "Magenta Carpet" at this years NBA All-Star Game, product placement has become the best way for brands to get consumers' attention.
Of course, product placement in social media can be done with a digital twist.
It's entirely opt-in for the consumer (users choose who to follow and "like"), easy to test and measure for performance, and 100% disclosed.
It may just be the key to unlocking the real premium media in digital.
But let me go back and show you how I came to this conclusion.
When Yahoo (where I was senior product manager) bought Flickr, my team was tasked with figuring out how to monetize it. We placed the ads in the left-hand navigation, and got a whopping 12-cent eCPM.
When News Corp. bought MySpace, where I was an executive VP, my team was tasked with monetizing MySpace Photos. We placed the ads right next to the photos, and were lucky to get a 10-cent eCPM.
So when Fox bought Photobucket, we were in awe of the 50-cent eCPM they were getting.
But when we dug deeper, we found they were actually auctioning off groups of unique users to ad networks, which were willing to take a loss on the inventory in return for juicing up their comScore rankings.
It was a very enterprising approach, but not sustainable.
I can only wonder then how the new class of photo-sharing apps like Color and Instagram will get around this problem.
It's a similar story with video.
Consumers are so focused on the videos that the only way to get their attention is to interrupt them with a pre-roll ad.
Consumers will tolerate pre-roll for premium content. But with 80% of video views going to user-generated content, pre-roll can't scale.
And, as innovative as the text overlay ads are, I'm not convinced they are the solution when my 3-year-old son has already figured out how to close them!
Over the past seven years, more and more marketers have turned to social media to buy impressions in bulk as a way to lower their overall digital CPM. (Even with the great targeting capabilities now available on social networks, the inventory is still an order of magnitude cheaper than it is on premium content sites.)
But as these ads get closer to the stream of status updates from the friends and influencers, the price goes up.
On Facebook, the homepage ad next to the news feed goes for seven times the average CPM of the ads on the rest of the site. The market will only bear that price because ads get clicked on more frequently on the homepage than they do elsewhere on the site.
That was also the case when I was with Fox and focused on monetizing MySpace. There, 60% of the display revenue on the entire site came from the ads next to the stream of status updates.
Twitter in Japan has caught on to this dynamic. It is selling display ads next to the timeline, and collecting a tidy sum.
Now, when marketers make the leap directly into the stream -- as Twitter permits with Promoted Tweets and Ad.ly enables with celebrity endorsements -- we see a dramatic change.
The CTR climbs off the charts because the stream of tweets and status updates is where consumer attention is focused.
Users notice the in-stream ads more often, and -- with good creative -- they engage, clicking-through to the advertisers' site, retweeting, replying, etc.
It's early days, but it's a growing trend that cannot be ignored. When our new client Charlie Sheen sent a promoted tweet looking for a new intern, the company handling the applications saw 95,000 clicks in one hour and ultimately received over 82,000 applications.
Ads work better when they are integrated into the content in the consumer's focus.
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