At the all-important South by Southwest Interactive festival (SXSW) this year, I had the chance to sample the insight of many famous and not-so-famous players in the web space. One panel in particular was about the future of "social advertising." I have to clarify first that the term "social advertising" means different things to different people; the market itself can be thought of as a fetus, of which people are debating when to call it "alive."
Tim Kendall, the "dude in charge of making money" at Facebook and one of the panelists, recounted visits with very big people at very big companies, trying to explain to them what Facebook actually is, and why they should spend their ad dollars there. I'm going to stay neutral on that point, but Tim did use an analogy for Facebook that I really liked: Facebook is the TV Network, Facebook applications (those much hyped, but rarely useful mini-programs built by third-parties) are the TV shows, and big companies are what they always were... advertisers.
The entire advertising market (all $800 Billion of it) can be thought of as a funnel guiding you to a purchase. Like a coin whirling around one of those giant yellow donation funnels in malls, you predictably make your way from "discovery" of the good at the top to "purchase" at the very bottom. The proportion of ad spending in these various stages can be sized up the same way: a lot of spending at the top (brand advertising), much less at the bottom (point of purchase advertising).
BUT, the opposite is currently true on the web. Google was the first company to really figure out how to do online advertising, but their entire share of the market ($30B) exists in the very bottom of the funnel. No one yet has figured out how to effectively translate the top half of the ad funnel onine (the equivalent of the 30 second TV spot). Although ad-spending online as a whole is rapidly increaseing (as much as 20% from '06-'07), the HUGE brand advertising segment is moving at "glacial speed," to quote one of the panelists.
Facebook is hoping to grease that glacier with "social advertising," and their argument is very powerful. Word of mouth between trusted friends is the single most powerful form of advertising (if you could call it that), both in real-life and online, and the big social networks are where a lot of today's under thirty crowd are mouthing. Facebook wants to help advertisers influence the words.
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