Charles Hudson wrote an interesting post about how social networking advertising will be harder than we think. He suggests the largest challenge for social networks is that most consumer decisions on the site take place through the referral of friends. Back in November I proclaimed that social networks will become the new television. If that’s the case, why is advertising so challenging on social networks but not as challenging for the telvision.

Current Monetization Models
News alert: television advertising is in decline. Where are companies advertising budgets moving to? Online of course! So if advertising money is going away from the television and social networks are the new television, why aren’t the large social networks making a ton of money? The primary reason is because online advertising is focused on conversion. If I sell skis and advertise my ski company online where am I going to advertise? If I had an unlimited budget this is how I would spend my money:

1. Google - Honestly nothing beats it. John Battelle called it the database of intentions and that’s why they are number one. Typing a keyword into a search box is currently the most accurate measure of intention on the web if not in the world.
2. Facebook - Wow! Has Facebook already become the number two location for advertising? Not really but the reason I would spend my money here second is because Facebook’s conversions are known for having high conversion rates (based on my conversation with a number of people I have spoken to that have launched campaigns on the site).

   If I know the demographics and interests of the individuals I’m targeting, I’m highly likely to find people that are interested in my product. While they may not intend to purchase the product right then these people are your target demographic.

3. Banner Campaigns - Next up comes banner campaigns. As far as I’m concerned, untargeted banner campaigns are practically useless. They drive random people to your site. While some advertising solutions providers such as Advertising.com provide multiple channels to advertise to, this form of advertising is still relatively untargeted.

So somehow Facebook ranks second but I agree with Charles Hudson that large social networks won’t monetize effectively? Yes. The long-tail of advertising has a steep drop off at the beginning. Any tool that can measure intention will always be at the top. Facebook will be able to monetize better than they currently are but it will never be a Google until your friends can give you results in under a second (as Erik Nordlander said in the comments on Thursday).

How to Monetize Social Networks
So how will social networks ever make money? Honestly, the large ones will find it extremely difficult to monetize effectively until they become the creators of niche content. What do I mean? On large social networks the media is currently the users. I am, you are, we are all media. The only problem is that there is only so much money you can make off of individuals. Media is still king but it needs to be compelling content and also centered around a topic that has material relevance if it is going to be effectively monetized.

Ultimately, effectively monetizing these sites is straightforward:

1. Create content around a given niche topic.
2. Attract other users to the site that are interested in that content.
3. Get them in your network.
4. Advertise to them about related brands and services.

It’s that simple! The problem with the larger social networks is that they are too disparate. Many of the people have different interests. In theory you could try to sift through user profiles to determine what they are interested in (as Facebook does). Alternatively you could rely on the groups that they join (that have been created by other users). The only problem with both situations is that you are relying on user generated content which has proven time and time again that the majority of the content is crap.

Without having some form of editorial control or management of what is being discussed or defining discussions, it is impossible to automatically determine the type of people that are participating in various conversations across your site.

Who are the Winners?
As we will see the real winners will be niche networks. This is an easy thing to assert following Ning’s $500 million valuation. I could dissect the pro and cons of the Ning business model but I will save that for another day. Ultimately, the combination of valuable niche content and networks around that content will build the most effective way at monetizing social networks. Do you foresee another successful model for social network monetization? Who do you think will become the real winners?

This morning following me posting one of my articles, my internet suddenly shut off. I later learned that it was because a payment I had made over the phone had not been processed. In between me not having internet access and tweeting it via my mobile phone, @comcastcares asked me if I had my issue resolved. While it wasn’t instantaneous, it was really quick. Previously, in order to receive the phone you would have to pick up the phone and call customer service to get some help.

What Comcast has done is extremely simple but transformational. They are proactively engaging frustrated clients. This model is not new but what happened with me on Twitter painted a funny picture in my head. Imagine sitting in front of your brand new plasma TV, the installation people finish mounting it, turn on the TV and everything works. Once the installation team walks out the door you start using the television and realize that you can’t change the channels because there’s a lock on the cable box.

After yelling a few expletives you proceed to try getting things to work. Within moments your phone rings and it’s a technical support person there to walk you through resolving your problem. “How did you know I had a problem,” you ask the technical support representative. “Your girlfriend just told her friend on Twitter that she was enjoying watching you figure out how to make your new television work.”

Your girlfriend (or significant other) smiles as you glance over and the tech support rep proceeds to walk you through the process of configuring your television. This is only one example of the future of support. Social technology is changine the way that brands interact with us, not just the way we interact with them. This began with blogs but new social technologies are making it it easier for us to have a personal relationship with our brands.

Over the coming years as social information makes parts of our lives more public, brands will have the opportunity to have more substantial bonds with their clients. While we thought the digital world would distance us from brands since we wouldn’t necessarily have a face to face interaction, we are actually being brought closer thanks to these new social technologies. Do you have any examples of improved brand interaction thanks to these new technologies?

Depending on which media source you look at, the latest news today from eMarketer could be seen as positive or worrisome. Alley Insider prefers to point out the downside suggesting that research firms continue to downsize their estimates for future online advertising campaign. Others have been more upbeat and given that Federated Media, a popular online ad network, is about to close $30 million in funding, things aren’t looking to shabby.

No matter how I look at the chart below, it is difficult to come up with any downside. The largest growth over the next 5 years is supposed to come from rich media and video advertising. This isn’t surprising since interactive advertising is becoming more advanced and well, more interactive.

If you are looking are looking at the absolute numbers expected out of each sector of online advertising (search, rich media, sponsorships, lead generation, etc), all of them are expected to grow over the next few years but percentage wise, allocations will be adjusting.

For now, while advertising expenditures are being revised downward, it is still a rosy outlook. While other parts of the economy are sagging, the online industry is still booming and given that advertising dollars are the primary source of web revenue, it’s refreshing to see eMarketer’s new projections.

Some things just go with social media, a person can look at them and say, “wow! why didn’t I think of that.” There are somethings that make you scratch your head. H&R Block has entered the world of social media full force. They have hit the social media world with all the favorites:

• Twitter
• Myspace
• Facebook
• Their Own Site Called Digits
• Youtube

I have never been one who hated paying taxes, but I know that there is a HUGE undercurrent of American culture that doesn’t trust the IRS or Tax Agents. I also know it is a charge of the Federal government to stream line the tax process and make more Americans use online tax services.

I think going social is a bold and wise move for H&R Block to make a jump into uncharted waters. One, it targets a demographic that has the most questions about taxes. Two, it creates a sense of trust and friendliness that a business like taxes lacks. I honestly believe the Federal government should set up a similar program to try and educate people about taxes.

I am interested to hear if any of you out there would consider using H&R Block now they have gone social? Have any of you found H&R Block online already using social media? Do you trust them more or less? Do you feel this program creates an air of friendship with your tax man? Let me know.

Rob Walker has a great article in Fast Company about the differences in our social profiles versus our real personalities. He accurately suggests that our social profiles are not completely accurate images of our selves but are instead tools used to “promote our own agendas.” Personally, I have adjusted all of my social profiles to be used for self-promotion instead of simply using it to share fond memories with my friends and family.

Given that our information is not completely accurate and can be frequently misleading, will marketers be able to accurately target us given our false information? On sites like MySpace, the problem becomes even more complex given that many individuals’ profiles are alternative identities that they choose to express landing further from reality (or perhaps simply an alternative reality). Whatever the case, the theoretical maxim of social advertising is far from accomplished in contrast to the historical transformation of advertising that Mark Zuckerberg suggested was taking place when Beacon launched.

We know which way the industry is going but the expected changes may not be taking place as fast as we once expected. The marketer’s dream of being able to instantly access the consumers that want to purchase their product and the consumer’s dream of being marketed only things that they are interested in remains a distant concept. There is still much work to be done and no single company has come close to winning the race.

Looking to advertise your business? You will soon have a limitless selection of ad networks to choose from. There is search advertising, social advertising, banner advertising, video advertising and a number of other ad solutions. Media companies are typically the primary driver of these new ad platforms because they need to offer their advertisers alternative channels for exposure. Just today I’ve seen a number of new advertising solutions announced.

Michael Learmonth has posted that four of largest newspapers will be launching a new web based ad network. Comcast has also announced that they will be launching their own ad network as well. All of these ad networks are attempts at diversifying into the booming online ad space which currently accounts for 7.7 percent of domestic advertising expenditures (TNS Media Intelligence).

In terms of attention share, the internet has a far larger share then is currently accounted for in ad spending. As a result you see journalists and entrepreneurs flocking to the web space to try to get a piece of the $35 billion domestic advertising market. A lot of these web based ad networks are going to fail miserably but then again right now it’s nothing but growth in the web based ad world.

Last week I brought up the issue of the effectiveness of social ads. The debate rages on with Joshua Porter providing insight as to why social advertising will never be as effective as search advertising. I have to agree with Joshua that search can actively track intent and thus is more effective. Users browsing through their friends’ profiles are not actively looking for something and are instead passively hanging out on the site waiting to find something of interest.

I honestly don’t think that social advertising will ever generate more than search but if it can generate a fraction of what search generates it will still prove to be highly lucrative. I also believe that combined with search, social advertising can increase ad conversions. I have been saying for a while that the value of social networks are not the websites themselves but instead the information that the sites have on each user.

I always use the example of browsing through CNN.com and having an advertisement that is targeted at you based on your Facebook profile data. Another possible value would be the combination of Google and Facebook. Not only do you receive ads that are targeted at your geographic location and based on your intent but you also get advertisements that are based on other demographic information.

This is still theory though and there is no data to back up my assertions unfortunately. Joshua Porter definitely makes some great points on his post and concludes that nothing will monetize more effectively on than search on the web. Do you think social advertising can work?

Last week I began asking if social networks can be effectively monetized. The discussion was sparked by Google’s inability to meet Wall Street’s estimates. Google’s primary explanation was that social networking sites were not monetizing well. It was an indirect shot at MySpace who yesterday said they were satisfied with the yearly growth in MySpace which posted revenue of $233 million. Overall revenue was significant but if you view the advertisements that are displayed on the site you may question the value.

MySpace is also much more aggressive with their advertising opportunities by enabling brands to literally brand the entire site. I tend to be fairly critical of these types of branding strategies but then again if you paid me half a million I’d be more than happy to brand this site. I’m also sure that MySpace is bringing in more than half a million for large branding deals. While the social networking space continues to grow, the Wall Street Journal suggests that it isn’t growing fast enough.

Recent reports have shown that the CPMs for social network applications most frequently fall below $1.00. I consistently reiterate the importance of non-traditional advertising. Instead of using banner advertising, developers should be partnering with larger brands to provide custom branding opportunities. By forming relationships with brands, application owners can earn well beyond the $1 CPM that they earn with other advertising solutions. Have you heard of any other advertising models that are effective at generating revenue on social networks? Would you pay to use a social network?

Could social media be the key to your marketing woes in 2008? According to an article published by DirectNews, the answer is yes. The article sights an online promotions consultancy group named Oneupweb which reviewed companies like Nintendo, Coach and Pronto.com.

Lisa Wehr, the firm’s CEO, stated that “This is exactly what online marketers need to do to be successful in a rocky 2008 economy.” I find it difficult to agree with Lisa when it comes to modeling a social media campaign off of another company. Social media simply isn’t that formulaic.

The problem with assuming that social marketing and social media can ’save’ your business is like putting your eggs in one basket. Marty Wientraub of SearchEngineWatch said it best when he describes social marketing as a “double-edged sword.”

Think about what you are trying to accomplish with social marketing. You are attempting to create third party credibility by turning the public into brand ambassadors. This theory works great if your product can stand up to the critiquing and your company handles all of its marketing honestly.

The problem with pinning all your hopes on social marketing is that you are going to try and force the issue. We have seen time and time again that social media can not be forced into expressing an opinion. It can be nudged by helping create exposure points with key members of social media but it can’t be made to express an opinion.

Social marketing works best when it is used in conjunction with standard marketing. By creating a fun social campaign that reminds people of your traditional marketing campaign you can assure success. Success does not come from having a popular Youtube video, though it helps.

What are you thoughts on marketing in the social realm. Can brands build superior brand equity by targeting social media? Are customers more likely to follow a brand because its online social campaign and the product enlisted their friends as ambassadors?

Caroline McCarthy does a wonderful job detailing the overall trend at tonight’s New York Advertising Meetup at Googleplex East: “Old media’s not dead, it just has to be Google-ized.” Over the course of an hour, Google executives from radio, print, search and agency relations discussed (read: pitched) their online and offline products to the Madison Avenue audience.

Granted the event was hosted on their turf, Google did have a right to pitch their products and talk up why a YouTube campaign may return the greatest ROI of all online initiatives. Sure, there were some blanketing statements like the one I just listed, but I couldn’t help think about spaces outside the dominant Google; of things that Google has yet to touch.

What about mobile? Yes, Google makes great mobile applications like Maps, Search and Reader but what about advertising? “None of us know what the [mobile] monetization models could be,” Derek Kuhl, Head of Agency Relations, admitted. In the US, search is king, expected to hit $1.4 billion in revenue by 2012 although three in ten mobile users recall seeing mobile advertising. Ouch.

Above: A pamphlet with a QR Code in the Google logo. Text reads, “Half of the American people have never read a newspaper. Half never voted for President. - Gore Vidal. ‘I hope it is the same half!’ Print Ads TGIAF at Hemisphere (Google’s NYC cafeteria) 1/31/08″

In the most subtlest of ways, Google introduced a comprehensive (what marketer’s like to call, “integrated”) mobile advertising initiative via a soon-to-be-announced product for Newspaper Print Ads: QR Codes. Already available and widely popular/useful in Japan, QR Codes will work in tandem with Google’s offline advertisements in newspapers. (Wait, I thought print was tanking?) Similar to a bar code on a cereal box, QR Codes are compact enough to store valuable information (think a website address or coupon). For Google, this means taking a text ad that was placed in print, utilize the corresponding QR Code and draw the reader to another destination.

This may seem menial in comparison to Android efforts, but Google’s foray (at least in the US) into mobile advertising via QR Codes changes the dynamic completely. As the sales and engineering teams test the product internally, expect the industry to steadily roll-out awareness programs and updated software for leading smartphones and the iPhone.

P.S. I also asked Kuhl if he or any other panel speakers had any update about Twitter-competitor Jaiku and (I guess) the answer was expected: “I don’t have any updates except that we acquired it.”

Update: Dan Frommer at Silicon Alley Insider points to Google’s Print Ads barcode information website.