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Digg, Facebook and YouTube: Show Us the Money

I’ve been having fun lately punching holes in Henry Blodget’s absurd rants about the imaginary “online advertising crash.” But, there is one online sector that really does make me feel like its 2000 all over again – social media.

Let me say right up front, I’m not knocking the usefulness of social media sites. I graduated from college long before facebook was launched, so I’m just getting into it. But, I have to say that it’s been a great way to connect with new friends and an even better way to re-connect with those I’d lost touch with. Like everyone, I love the best YouTube clips and I’m starting to appreciate the power of embedded video within blog posts. I won’t lie, I’ve never been too thrilled with Digg, but, then again, I don’t think I’m in their target demographic.

I’m also not belittling the value of social media optimization. If Neal, Jane, and Tamar have taught me anything lately through their writing, it’s the massive power of social media sites to drive traffic or to build your personal brand. And, if you are currently working in online marketing, you ignore the power of these sites to build traffic and shape perception at your own peril.

So these sites are great for their users and those people and sites made popular by their users. The question I have is this – what’s in it for the owners of these sites?

What creates economic value online is the intentionality of the user. Millions of people search Google every day as they are heading down the path to a purchase. Similarly, people visit Yahoo Finance to figure out where to buy insurance or what kind of loan to take out. They visit Amazon, which is now an information portal with a store attached to it, to research and then buy retail products.

Here’s a striking number for you – Google generates about 60% of its revenue from just three broad categories – retail, travel and financial services. Google is worth over $160 Billion for one simple reason – clicks on AdWords lead to real (and often immediate) purchases, more often than not in one of these three categories. People type in “hotel in Tampa,” they click on an Orbitz ad, and then they book a room. That’s where the money comes from.

What about the social networking sites? Let’s start with facebook. I’m looking at my own profile page now and see one 120×600 tower ad on the left side of the page. I refresh a few times. I’m clearly seeing a lot of cheap run-of-network ads. In four impressions, I get two job sites, one for AOL Search and a public service message from the Ad Council. You know you’re raking in big bucks when you’re pumping out ads for the Ad Council. Average CPM? My guess is ten cents/1000 at the most. Keep in mind that even a 10 cent CPM gets you just $100,000 for every billion impressions.

What about Digg? Let’s see, they have an audience of angry teenagers. That makes for pretty tough sledding in travel and financial services. Oh, and did I mention that the audience seems to hate advertising? So, maybe Digg’s not the best place to launch your new product. Thus we see mostly text-based AdSense ads on the front page. And, it’s a news site, which unlike Google search, is not exactly a place where transactions are initiated.

Then there’s YouTube. I know I’m far from the first person to question the monetization there, but I include them to help illuminate the pattern. I’m sorry, Google, but network television is worth something because it’s edited. There’s someone to sue if the live program you’re sponsoring lets a naughty word or a wardrobe malfunction tarnish your brand. What major brand advertiser in their right mind would expose themselves to content that is far edgier than that on a daily basis? Let me check. Two refreshes, two impressions: one ad for Get Zwinky and one for Webfetti.

And, finally, there’s twitter. I don’t even know where to begin with that one.

The common theme here is that all of these sites are highly useful for their millions of users. They also have created tremendous fame, loads of referral traffic, and a few hook-ups along the way. But what’s the intentionality of their users? How many airfares, insurance policies or computer sales are ever going to originate on any of these sites? How many brands will be built through paid ads targeted at their users?

You don’t need to remind me that some people (who are much smarter and richer than I am) have paid big bucks to acquire these sites or buy up their ad inventory. I’m just not convinced that was the right move.

Jon Kelly is the President of SureHits, the ad network for insurance & loans.

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10 thoughts on “Digg, Facebook and YouTube: Show Us the Money

  1. Hey Jon,

    I think you overlooked the fact that the major source of income for social networking sites is advertiser partnerships and sponsored profiles, you’ll see these on Myspace, Youtube and now Facebook. Wanna guess how much those placemnets are bringing in…

  2. I would agree to some extent that right now these sites aren’t being optimally monetized. For, Google, the hard part is expanding the reach of their content networks as there is only so much real estate out there. I think that give time, the ad models for each of the sites will shake out.

  3. I always think that social network worth a lot of money. It might not have that much direct income from Ads, but the database of their user’s behavior worth a lot of money.

    Those kids in myspace and facebook are your customer for the next 50 years. If you spend time doing some data mining, you can find out their spending pattern, what they think is cool and why they think that thing is cool.

    Some company spend million on survey to get those data and they might not get the result because they are not those kid and don’t know what those kids wanted. However, with those social network, those kids are telling you what they want.

  4. I always thought that social network were worth a lot of money. It might not have that much direct income from Ads, but the database of their
    user’s behavior worth a lot of money.

  5. btw, there are also a few problem with the data from social network.

    1) The data set will be very big and there is a lot of noise.
    2)People doesn’t behave the same when they use internet because of they are anonymous.