After a hectic few days of trying to redesign the procurement processes, I am back again doing something am more comfortable with. This one is for all those UGC buffs out there who by nature overestimate the effect of advertising in today's social networking landscape. Lets start with a bit of background. 2007 was a big year for social networking - It became a norm for everyone using Internet to hop-on to the social networking bandwagon giving birth to an entirely new set of companies in the online space. It eventually re energized the fast debilitating online advertising industry. So positive were some industry observers that some industry reports pegged the total online advertising revenues (in social networking) at US$500 Bn worldwide. If 2007 was a year of positives for social networking, 2008 is the year year that sounded warning bells for those who believe social networking represents the next frontier in online advertising revenues. A sobering slowdown in growth, combined with a more worrying drop in usage of social networking sites, has highlighted the significant challenges that the big established players, in particular, face in keeping users engaged.
This could well sway the odds in favour of some of the more specialised sites, who are able to focus on catering to the needs of different audiences. Bain Capital recently invested US$53 Mn in professional networking site LinkedIn which now values the site at more than US$ 1 Bn. Although this was far less than what Microsoft paid Facebook, but it is an indicator of things to come. Merely having appealing platforms for users to interact may not keep users glued to the sites. The focus has well and truly shifted to applications. This again brings us back to the same question. How profitable is social networking as a business model. One more testimony to this is the news released last week where google conceded that the revenues from its pet UGC video site, You tube will fall short of expectations.
Much of success You Tube has enjoyed as discussed in one of my other articles (http://svsantosh.blogspot.com/2008/02/death-of-30-second-tv-commercial.html) is due to minimal content filtering. This has been crucial to its popularity and the core of its ability to now boast to advertisers of millions of eyeballs that visit its site dialy. But advertisers are starting to weigh the gains of exposing their product/brand to millions of unpredictable users. Viral marketing can have its own set of disadvantages as well. As an example, the popular mentos + coke video created so much buzz that some other user uploaded a clip of a person eating Mentos, drinking Diet Coke and then projectile vomiting. How positive would a brand like Diet coke (which targets health concious audience) be for such positioning is quite questionable. Another issue is that of hosting ads on "copyright infringed" content. A substantial amount of content in You tube fall into this category, exposing it to potential legal wrangles.
There are many examples which project both good and bad (for the brands) of hosting content on Youtube or on other social networking sites in general and you can always argue either ways. Google believes that the next big opportunity in online advertising lies in playing a wider role of a broker for offline and online content. But this next big opportunity is definitely not an immediate one and only time and innovation will bring this to fruition in years to come (how many years will depend on how patient we are).
