Social media performance is often an order of magnitude worse than even the low-performing banner ads purchased run-of-network (that’s really, really bad). Social network alternatives are a smart bet because they respect the buyers who have $$ to spend (an increasingly rare breed). The sad fact is, social media is, flatly, terrible for media buyers. It’s not that the audience is bad — in the case of Facebook, it’s not — but, rather, the social networks are simply short-changing advertisers in favor of rapid audience growth. In other words, they are partly subsidizing their manic growth aspirations with ad dollars without delivering on their end of the bargain. In short, they put spots where the sun don’t shine, placing undue emphasis on the end-users, at the expense of their ad-buying customers. Nobody clicks on them because they don’t get attention. Media buyers should not buy into the CPM or (eyeball) arguments from social networks. They’re not even close to the target and it seems they have a very Madison Avenue approach to on-line media (a major, myopic, error). The eyeball argument is moot because Facebook users don’t see Facebook ads. Murdoch is 100% correct. Identify the places where Social Network users hang out (not very hard) and buy there instead. Don’t spend you’re money where it is not respected. Social networks are the ad snake oil of today. And unless they change, they’ll be the AltaVista of tomorrow.

The first story draws from the economic analysis of advertising. It finds its roots in the long time dispute between supporters of the Harvard view (according to whom advertising is mostly persuasive and thus anticompetitive) and supporters of the Chicago view (who argue that advertising, as a source of information, has a positive effect on welfare). Internet is commonly described as an effective way to improve matching and thus reinforce the informative dimension of advertising. In the context of Web 2.0, targeting (through the use of contextual and behavioural profiling tools) is introduced as the best (if not the unique) way to improve advertising revenues.

However, the standard view tends to underestimate the diversity of advertising formats and the potential of innovative models to contribute to Web 2.0 advertising revenues. The second story builds upon the Convention School framework, which underlines the plurality of the worlds of production inside a market (Salais and Storper, 1993). It allows to observe the emergence of two alternative models in online advertising: one addresses high value (premium) niche content through an editorialized intermediation; the other, often referred to as social media marketing, consists in using the viral nature of social ecosystems to spread brand images and ads. These new models, though offering high revenues, are still unstable and under-equipped.

This argument is developped in a paper available here : http://economix.u-paris10.fr/docs/34/Mellet_advertising_web2_sept08.pdf

KM