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TECHNOLOGY REVIEW JULY / AUGUST
January 2008, nearly double the number from the previous Janu-
ary (but down by about 2 percent from December 2007). MySpace
doubled Facebook's numbers again, with nearly 72 million unique
visitors in the same month.
Nevertheless, the sites seem largely incapable of generating
revenues commensurate with their popularity.
Last year, Microsoft bought a 1.6 percent stake in Facebook
for $240 million, giving the company a dubious valuation of
$15 billion. But Facebook is likely to lose $150 million this year,
according to a January conference call heard by Kara Swisher of
All Things Digital, a Wall Street Journal--a liated site devoted to
"news, analysis, and opinion about the digital revolution." That's
based on projected earnings---before interest, taxes, depreciation,
and amortization---of $50 million and an expected $200 million
in capital expenses, including new servers.
Revenues for MySpace parent Fox Interactive Media fell $100
million short of predictions this year, apparently leading to the
dismissal of the chief revenue o cer. And Google met with dis-
appointment after paying $900 million in 2006 to get a piece of
MySpace's tra c, buying the right to deliver ads for three years
against keywords entered on the networking site. "I don't think we
have the killer best way to advertise and monetize social networks
yet," said Google cofounder Sergey Brin in a call with investors
after Google announced its fourth-quarter 2007 results.
Ning does not release numbers about ad sales. All Bianchini will
say is, "The number of networks we have is our leading indicator."
If Ning's experience is anything like MySpace's and Facebook's,
its leading indicator just indicates a lot of users.
Lookery, an advertising network that buys ad space on Face-
book in bulk, has been reselling that space at 13 cents per thou-
sand times an ad is served, or in ad industry jargon, at a $0.13 cost
per mille (CPM). Facebook sets a minimum CPM of $0.15 for its
"social ads," which allow advertisers to target ads to Facebook users
and groups according to characteristics like location and age. And
over the last year, MySpace has lowered its banner-ad rate from a
CPM of $3.25 to one of less than $2. By way of comparison, a ban-
ner on Mashable, a blog covering the world of social networking,
has a CPM of $7 to $33, depending on its size. Websites with clearly
defined audiences of executives and technologists who purchase
corporate products and services, such as TechnologyReview.com,
do best of all. Technology Review's site boasts a CPM of $70.
But even low rates haven't been enough to lure advertisers and
media buyers to social networking. "A lot of advertisers are very
hesitant to get into MySpace," says Anthony Acquisti, who over-
sees strategy for emerging media at OMD, an advertising agency
in New York. "We've even flat-out told interested brands, 'You
don't want to be there.'"
Why not? The problems with social-network advertising revolve
around three main issues: attention, privacy, and content.
In the last week of April, around 400 people who spend their
days trying to figure out how to make money in social network-
ing gathered at the Skirball Cultural Center in Los Angeles. The
conference went by the not very catchy name of EconSM, short
for Economics of Social Media.
The point of the conference was clear enough. As Kara Swisher,
one of the panel moderators, joked on her blog: "I'm in search of
the elusive profit, which I don't think I'm going to find."
Almost every player in the game was represented: smaller com-
panies that sent their CEOs, like Alex Blum; investment banks that
wanted to take them public; and companies like Yahoo, AOL, and
Fox Interactive Media, which were in the market for acquisitions.
(Facebook sent no one.) "This is a huge conference," Blum said.
"All the people we work with are here."
But they didn't seem very engaged. Audience members were
jumpy, posting updates to the microblogging service Twitter,
checking e-mail, reading blogs, dipping into the newspaper, and---
occasionally---listening. Specific problems addressed in panel ses-
sions quickly sorted themselves out into a general problem and a
general response. People weren't paying attention to the ads (as,
indeed, people at the conference weren't much paying attention
to the panels). One panelist, Seth Goldstein, put it this way: "Right
now, 'social' advertising is anything on a social-networking site
that users are pretty good at ignoring."
Goldstein should know, since his company, Social Media, sells
advertising linked to the applications developed for Facebook
and MySpace---products like Scrabulous and Compare People,
which are hugely popular among the sites' users. "The trouble,"
says Goldstein, "is we're putting ads up in front of users, where
they can ignore them. We've got to get them between users."
Goldstein's comment had the air of a slightly worn sound bite,
but it did acknowledge a problem that outside observers describe
more bluntly. "It's a really bad place to advertise," Jason Calacanis,
founder of Webblogs and Mahalo.com, says of social-networking
sites. As he wrote in an e-mail, members of social networks "are
busy in conversations and don't want marketing messages."
KickApps is giving its
product away, expecting
that the communities built
around it will generate ad
revenues. It's a model that
stirs memories of the first
Internet bubble: build the
user base and hope the
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