Among all the discussion of the opening of the social web, one thing continues to be a sticky issue for social networks: the lack of a revenue model. While there is advertising revenue being generated on social networks, it is still a fraction of the amount being generated on sites like Yahoo! and Google. Om Malik points out that the lack of a solid revenue model comes with continued signs that the social networking space is slowing domestically.

While there is continued growth abroad, it is much harder to monetize foreign inventory. As such, the social networking industry is in an interesting position. Social platforms have helped generate more inventory but it has also made it more challenging to monetize that inventory. There are people that have developed creative ad campaigns but unfortunately that’s not filling their entire inventory for an extended period of time.

While Facebook and MySpace have been working on targeted ad solutions to help increase their effective revenue generated per active user, there is still too much inventory and extremely low CPMs for the majority. Either social network inventory will continue to attract cheaper advertising or a new advertising model will be developed to increase the effective CPM.

Other variations of advertise include attempts at monetizing “engagement” but really nothing has been developed to increase returns. Among all the buzz, the limited domestic social network growth means that it’s time to start focusing on new solutions for revenue generation. Do you think the industry will find any new solutions or will social networks continue to generate less valuable inventory?

I had a potential client make an inquiry to me yesterday afternoon. They asked me about developing an application which would ultimately be used to gather phone numbers. The one problem with the model is that the proposed system didn’t provide much value to the user in exchange for them providing the phone number. Somehow though, the application was supposed to spread virally to the masses who would all in turn enter their phone number. It didn’t make much sense to me.

Society is Focused on Overnight Success
I can’t tell you how often someone calls me to request the development of an application that will instantly spread to the masses. When I ask them what the application is going to provide to the user, they say that they don’t know but they just want it to spread virally. People are focused on being successful for the sake of being successful. Too frequently they don’t think about the value being provided to the user, just that they want to be “successful” and get lots of users.

This is clearly the wrong attitude and I choose not to work with people that focus on the end game and not how they’re going to get there.

Marketing Just Got Harder, Not Easier
For large organizations, marketing and advertising used to simply consist of large advertisements plastered on billboards, printed in magazines and newspapers and played on radio and television. While this is an oversimplification of marketing and advertising in the past, one things is for sure: marketing is no longer simple.

There are now countless channels to interact with the consumer and choosing which one to use is a balancing act. Social marketing requires building relationships with the customer. Building relationships is not easy, it takes time. Anybody that thinks they can simply slap up a simple application and have millions of users that eventually become paying customers is definitely misguided.

There’s Still a Huge Opportunity
While marketing and advertising may now be more complex, there is also more opportunity to directly interact with your customers like never before. By leveraging social marketing via social applications, blogs and blog outreach, Twitter and other social tools, you can directly reach out to your potential customers and existing customers to help build brand awareness.

Twitter versus Facebook
One thing that I’ve been thinking about recently is leveraging Twitter versus Facebook for marketing purposes. Let’s say that there are customers talking about your product on Facebook and Twitter. How are you going to find those people on Facebook? You can do a search for groups and fan pages but that’s about it. How about wall posts and status updates of people on Facebook? Unfortunately you can’t track those.

On Twitter though, you can find each individual that has mentioned your company and reach out to them directly. I have previously written about my experience with Comcast on Twitter. Zappos and a handful of other companies are also playing it smart when it comes to Twitter. The best part is that you can reach out to every individual that ever mentions your brand.

Can You Control It?
As I mentioned at the beginning, too often are people focused on instant success while not focused on providing amazing value. The benefit of social marketing is that products and services spread virally. This is really nothing new given that word of mouth marketing was around prior to the internet, it’s just that we have new ways to spark word of mouth campaigns and track what people are saying about us.

The reality is that you can’t control social marketing, you can only participate in the conversation and participating frequently means starting the conversation. Provide value and amazing customer service and people will talk about your company. You can then use web-based social marketing channels to monitor the spread of your brand and help magnify the signal by interacting directly with your customers. Do you think it’s possible to control social marketing?

An interesting study was published today suggesting that “so-called ‘influencers’ might have less clout than some marketers think.” This is not really surprising but I would suggest that there is a spectrum of influence in marketing and advertising. Along that spectrum is our close friends and family which provide the most influential personal recommendations and at the other end of the spectrum would be advertising such as billboard ads.

As Marshall Kirkpatrick suggests, this means that the infamous “Tipping Point” that Malcom Gladwell created may not be accurate. To suggest that the majority of people make decisions based on a select group of people is somewhat ludicrous. The study stated that:

Of more than 1,100 adults polled in December, nearly 80% said they were very or somewhat more likely to consider buying products recommended by real-world friends and family, while only 23% reported being very or somewhat likely to consider a product pushed by “well-known bloggers.”

So does this mean that there is no point in investing in the “well-known bloggers” when executing a marketing campaign? I don’t think so. Ultimately marketing and advertising is about diversification so spread it out based on the impact of each of your marketing investments. This study also shows that Facebook’s SocialAds system could theoretically have a substantial impact. If our close friends and family are using something we are more likely to buy it.

Leveraging click-thru data of individual advertisements on Facebook to monetize our influence makes a lot of sense. Why not get paid for something that you’ve worked hard to build?
The study adds that determining influence is not simple though:

“Understanding real influence, you have to look at a number of factors from the type of audience someone attracts, where their expertise lies, and the context in which other sites are linking to them.”

While it’s not easy to track all of the factors of influence are, I would say that Facebook is currently the closest to calculating our digital influence. Do you think there are other companies that will succeed at this sooner? Do you think monetizing influence makes much sense?

Earlier today, Darren Rowse posted what I would assume is a great April fools joke. No he’s not wrong with the date, he’s simply hours ahead of us over in Australia. While I seriously doubt that they were able to get a follower base of 250,000, this brings up an excellent point and is something that I would expect to see launch very soon.

Tweets can drive a significant number of visitors to your site. I know that I get a significant number of visitors from Twitter, especially when a user with a large number of followers tweets about a post of mine. Very soon we will see pay-per-tweet offerings even if Darren Rowse is the person to come up with the program. This is a duplication of PayPerPost but for the microblogging world. So the question then arises if such a system would be ethical or if this would be frowned upon by other Twitter users.

Personally, I don’t think it’s the best idea. Posting advertisements into the stream of tweets could significantly clutter your feed depending on what percentage of your friends decide to accept pay-per-tweets. Additionally, such a system would reduce the value of overall links on Twitter. While the system doesn’t yet exist and I’m calling b.s. on Darren Rowse’s post, I think somebody will try this out and the question is what will be the response when that happens?

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.

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?

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.

Great news today coming out of eMarketer regarding SNS (Social Networking Services) and ad spend. According to the report, Social Network Marketing: Ad Spending and Usage, “social network ad spending is expected to grow by 81%, to $2.2 billion in 2008 from $1.2 billion this year” and “spending [in the US] is projected to rise to $1.6 million in 2008, from $920 million in 2007.”

A large portion of the spend is coming from deals between the two largest SNS properties: Microsoft/Facebook and Google/MySpace.

I’d be interested to see what details and best practices are mentioned for targeted ad spend on SNS within the report. Neither I or famed SNS researcher, danah boyd, have seen relevant evidence to track eyeballs into actions.