Advertising has been a non starter on social networks. The financial results of Facebook, Linkedin and even MySpace reflect the promise of social networks as advertising platforms may go unfulfilled. I'll go so far as to suggest that advertising simply doesn't work on social networks. How can this be? 100's of millions of people and it's not an ad play? No. Because social networks are not media. They're a service.
Google created a very unique business by integrating a world class search engine with a self service ad model that has scaled beyond belief. While arguments still rage over whether Google is a media or technology company; the fact that they derive the vast majority of their revenue from advertising causes most people to put them in the media category. I would actually put Google in the application, not media category. Google's level of utility and the elegance of the UI, is as powerful as any consumer software application every created. Google is the ultimate searchable database application. So isn't Facebook the same thing? No. Not even close.
Facebook is a software service. It provides an extraordinary user experience; with the ability to create content, connect with individuals and groups, share information and interact, follow and keep up with your social networks. Frankly it's closer to Salesforce.com than it is to an online media platform like Yahoo! or an application based utility like Google.
The potential of social networks as advertising platforms has to be evaluated against the backdrop of online advertising overall. To date, the vast majority of consumer advertising online is still following a television paradigm; interruption based messaging, limited if any context to the content being viewed and the hope that given the number of consumers reached, some sort of value is derived. To further complicate the issue, there is no common currency for consumer online advertising, as there is with television. No broadly accepted Nielsen ratings to base pricing on. In addition traditional ad agencies can't find a formula for reach and frequency online like they can for television and broad based print. As a result the vast majority of consumer online inventory goes unsold, or is sold at low CPM's by ad networks or by Google. The ads that do currently run on social networks are even more irrelevant, obtrusive and out of touch than the ads that run on general consumer online sites. The goal of trying to create contextual advertising for social networks based on the data, behavior and information of the users and their networks, takes a level of technical sophistication that is still years away. Not to mention the challenge posed by increasing levels of concern about the use of personal data collected by social nets.
So where does this leave social networks like Facebook? From my perspective in a perfect position. As a service based platform I predict you will see Facebook start to offer a series of logical, user driven services and applications that will best serve their networks. App stores like the iPhone store, services like Skype, eBay like commerce areas and Amazon like commerce applications and experiences. At a functional level, iTunes, Amazon and eBay are actually social networks. Facebook and other social nets have far more in common with these "commerce" sites than with online media sites.
So in the end is this advertising after all? I see it more as community based markets, where networks of friends and colleagues can connect with each other, information and services and will be willing to pay for increasing levels of functionality to do so. Not a platform based on users clicking on ads that marketers hope they find clever or interesting.,