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Not everyone is so pessimistic. Andrew Braccia, a partner at
Accel, one of Facebook's early investors, thinks advertisers will
eventually become more accepting of the "breathing, dynamic"
nature of social networking and grow to understand that its
unpredictability is part of its allure. And Facebook's Palihapitiya,
perhaps naively, doesn't seem to think the adjacency problem
will arise much on his site; Facebook, he says, has "a tremendous
amount of user content moderation, with a very simple mecha-
nism for flagging inappropriate material."
Users' ideas of what's appropriate are hardly the same as adver-
tisers', though. Such arguments may not be enough to sway the
enormous, image-conscious brands that drive the majority of the
advertising market. And Palihapitiya, deliberately or otherwise,
may be missing the point: advertisers dislike rude content not
merely because it might reflect badly on their brands, but because
people reading such stu are probably not thinking about buying
many things that advertisers are selling.
Still, backers of social networking feel strongly that so many
eyeballs must have value. Braccia points out that while more than 6
percent of advertising dollars are spent online, 20 percent of media
consumption now happens there. "It's a significant opportunity,"
he says. "We're so young, so in our infancy here."
"These sites are no di erent from traditional media properties,"
says Paul Kedrosky, who writes Infectious Greed, a much-read
blog on venture capital and the Internet. "We're holding these sites
to an absurd standard. The advertising allocations will follow the
consumer, and right now they're badly out of whack."
Roger McNamee remains convinced that Facebook is too allur-
ing, too useful, and too established not to be profitable somehow.
The answer is out there, even if he doesn't have it. "Someone," says
McNamee, "is going to have to get creative. I take it on faith that it
will emerge. After all, I'm an investor. I'm hopelessly biased."
Marc Canter has a few ideas. Canter, who cofounded
MacroMedia, is now CEO of the company that produces the social-
networking tool PeopleAggregator, which aims to allow communi-
ties, tools, search engines, and the rest of Web 2.0 to interconnect in
one giant open mesh. He imagines ads of all kinds making up only
about a third of revenue, with profits coming from a "long tail" of
sources---from Craig's List--style marketplaces to on-demand music
downloads to branded apparel to ad-free premium services.
Chamath Palihapitiya expects Facebook to generate revenue by
selling a variety of such services to users. The site has rolled out a
"gift" program, in which friends spend real money to "give" friends
virtual items, such as an image of a box of tissues with a get-well note.
He also suggests that Facebook may at some point see revenue from
ads served through applications on its site, a growing and potentially
major source of income from which it currently gets nothing.
Perhaps most optimistic of all is venture capitalist Ron Conway,
the subject of the book The Godfather of Silicon Valley, who has
A GLOOMY FORECAST
Can social-networking sites continue to make signifi-
cant inroads into the U.S. online advertising market?
The outlook is uncertain. A shaky economy and setbacks
in targeted-advertising initiatives have caused leading
online marketing research firm eMarketer to project
more modest revenue growth for social-networking sites
over the next four years than it had previously predicted.
THE GLOBAL VIEW
Social networking is a global phenomenon, and reaching
users outside the United States will become increasingly
important as advertising dollars flow to Western Europe,
Asia, and beyond.
U.S. ad spending on social-networking sites relative to total
U.S. online ad spending in millions of dollars
Worldwide online social-network advertising spending
in millions of dollars
■ Rest of world
■ Western Europe
■ United States
■ Ad spending on
■ Rest of online-
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