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Social Network Inventory Not Monetizing

MySpace a Drag on Google's Earnings

     
9:31 am on Feb 1, 2008 (gmt 0)

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WebmasterWorld Administrator martinibuster is a WebmasterWorld Top Contributor of All Time 10+ Year Member Top Contributors Of The Month

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From a piece in the NYTimes [bits.blogs.nytimes.com]:

...social networking inventory is not monetizing as well as we would like,” said George Reyes, Google’s chief financial officer... In 2006, Google agreed to a three-year deal to sell ads on MySpace, committing to pay a minimum of $900 million.

People involved in that deal said that Google never assumed that it would earn its $900 million back from that deal, but it appears to be losing even more than it had expected.

Three things come to mind:

1. Social networks like MySpace are among the most visited sites on the Internet. That's a lot of page views.

2. Ad inventory at MySpace isn't working out. That's a fact according to a quote of Sergey Brin within the article where he acknowledges a failure to monetize.

3. Has the flood of inventory at MySpace and other social networks negatively affected the supply and demand ratio of average-joe publishers, resulting in lower earnings?

10:35 am on Feb 1, 2008 (gmt 0)

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Has the flood of inventory at MySpace and other social networks negatively affected the supply and demand ratio of average-joe publishers, resulting in lower earnings?

That is exactly what I've been thinking:

Those sites and deals should not affect narrow vertical niche publishers with ample advertisers supply.

But must heavily impact general topic or low advertiser inventory defaulting to general ads kind of publishers.

Which to a large extent could explain a lot of what we are seeing reported here as a gradual decline in earnings.

1:14 pm on Feb 1, 2008 (gmt 0)

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This is the most sane logic I've ever heard in WW. -)
1:29 pm on Feb 1, 2008 (gmt 0)

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it monetizes best if one is searching for say jobs, apartments or a video card and then ads show. When chatting with others or looking at pictures is totally different. I could have told them this much.
1:45 pm on Feb 1, 2008 (gmt 0)

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Social networks like MySpace are among the most visited sites on the Internet. That's a lot of page views.

Yes, but I think we have to look at the audience. Those millions of visitors aren't necessarily the cream of the crop when it comes to potential customers for advertisers.

Has the flood of inventory at MySpace and other social networks negatively affected the supply and demand ratio of average-joe publishers, resulting in lower earnings?

I think so, but I also think it's secondary to the main problem: 1) wrong audience.

I could have told them this much.

Right -- and a lot of folks made this observation when Google began adding ads to Myspace pages.
1:57 pm on Feb 1, 2008 (gmt 0)

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Myspace is kind of interesting because the look of the member pages is so stale. It hasn't really changed in a long time which has trained my eye to completely ignore all ads there, even the moving ones.

Part of the problem with low conversion might lay in page design and placement strategy.

2:12 pm on Feb 1, 2008 (gmt 0)

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I think of their traffic as forum traffic. In most cases it does not monetize well.

[edited by: ebound at 2:23 pm (utc) on Feb. 1, 2008]

2:13 pm on Feb 1, 2008 (gmt 0)

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I have said it before say it again social networking sites are a losing deal most of the users have come and gone. or may I say targeted users.

The user comes and it gets old having to deal with the spam porn postings etc slowness of the pages and all that so they quit but the number of users continues to rise.

This is were the big mistake happened the number of users was huge but the actual number of real time users was in reality way lower and I bet the actual number continues to drop.

I haven't been to myspacee in months really have no desire to and I see the trend in this direction.

The buyers of the Social Networking sites are taking a major hit here the loss is forthcoming soon and I bet it will be a huge huge amount.

[edited by: bwnbwn at 2:46 pm (utc) on Feb. 1, 2008]

2:19 pm on Feb 1, 2008 (gmt 0)

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>> I think of their traffic as forum traffic. In most cases it does not monetized well.

However, the cost is next to zero so anything helps. Now if you pay so much that a $300 million a year profit only breaks you even...

News Corp got Myspace for free and than some with this deal.

2:24 pm on Feb 1, 2008 (gmt 0)

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"However, the cost is next to zero so anything helps."

Don't understand what you meant here?

2:58 pm on Feb 1, 2008 (gmt 0)

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You: write articles, hire writters = $$$
Me: Have forum, users write them = few $100 a year

You need to make $250K to break even
Me: Very happy with $25K

Now myspace & facebook do have expenses, but they are nothing compared to Cnet, NYT etc.

[edited by: walkman at 2:59 pm (utc) on Feb. 1, 2008]

2:59 pm on Feb 1, 2008 (gmt 0)

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Yes, but I think we have to look at the audience. Those millions of visitors aren't necessarily the cream of the crop when it comes to potential customers for advertisers.

I think everyone would agree that the social networking traffic is far from the cream of the crop. But as a market, the numbers dwarf any other market online besides search. Since Google already runs ads on it's own sites and Yahoo and MSN aren't likely to strike a deal with AdSense anytime soon, the social networking market is by far the highest volume market available.

It's easy to see why Google would covet all those page views, but this could be a case of Google's eyes being bigger than it's stomach(at least for now). We run several social networking resource sites and moved almost all of our advertising away from AdSense for the simple reason that the ads they load are all but worthless. Our ecpm for AdSense is January was about 10% of what it was last January. Traffic has increased so earning aren't down that much, but almost every other advertising option we've tried has given better return than AdSense. Because of that, we and almost all the other big sites in our market have removed almost all AdSense advertising.

In the end, I wonder if AdSense will yield a net gain in page views from the social networking market with this MySpace deal. I know they are losing 10s of millions of page views a day in the resources market with the lower earnings and if other large social networking sites (like Hi5) are experiencing lower earnings as well, they might look to another provider in the future. It will be interesting to see what happens; I'll certainly be paying close attention.

3:08 pm on Feb 1, 2008 (gmt 0)

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walkman,

I follow you. If you've got $0 or (time and minimal expenses) in it, $25K a year is great. But I'm certainly not going to pay you $150,000 for the rights to the advertising on your forum for 2 years.

3:10 pm on Feb 1, 2008 (gmt 0)

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Critics forget that Google has advertising ambitions that go beyond pay-per-click ad. Sites like MySpace and YouTube may not lend themselves to direct-response ads, but they could work well for display ads aimed at a mass market, once Google is able to build up a sales force and establish the necessarily relationships to sell such ads in sufficient volume.
3:15 pm on Feb 1, 2008 (gmt 0)

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worst case audience:
web savvy underage kids looking for fun, chatting, flirting, using the community features, competely distracted from consuming advertising messages.

worst case platform:
no one enters the website searching for products, for ways to spend their money, no buying mood whatsoever.

worst case ads:
contextual text ads not performing, display ads sucking advertiser budgets dry. totally boring cheap look and placement, complete lack of inspiration.

too many techies, too few marketing folks at the googleplex?

3:26 pm on Feb 1, 2008 (gmt 0)

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When did the 3 years begin?
3:30 pm on Feb 1, 2008 (gmt 0)

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An interesting quote form an article on the G's earnings:

"Fourth-quarter revenue totaled $4.83 billion, a 51 percent improvement over $3.21 billion in the previous year.

In a more important measure to investors, Google retained $3.39 billion in revenue after paying fees to the thousands of Web sites in the online advertising network that fuels its profits."

I guess we all know that AdSense is a big part of G's business, but now it seems it is the vast majority (70.18%)

This is the best business model since ....

3:32 pm on Feb 1, 2008 (gmt 0)

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Critics forget that Google has advertising ambitions that go beyond pay-per-click ad. Sites like MySpace and YouTube may not lend themselves to direct-response ads, but they could work well for display ads aimed at a mass market, once Google is able to build up a sales force and establish the necessarily relationships to sell such ads in sufficient volume.

This is the key and why I said before that the deal might not make sense for AdSense "for now". There was a time when search engines got a lot of traffic but they were difficult to monetize. Times have changed. Currently the huge all-traffic sites like YouTube and MySpace are not yielding great return per visitor. But who knows what's around the corner? Two years from now with the proper creative development they could be goldmines.

[edited by: WebPixie at 3:34 pm (utc) on Feb. 1, 2008]

3:38 pm on Feb 1, 2008 (gmt 0)

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Those millions of visitors aren't necessarily the cream of the crop when it comes to potential customers for advertisers.

Every group is a cream of the crop for some group of advertisers.

Consider National Enquirer and other such supermarket tabloids. They have been around for decades and exist on advertising.

Maybe the contextual aspect just isn't producing the ads that will appeal to social site visitors.

FarmBoy

3:38 pm on Feb 1, 2008 (gmt 0)

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MoTI, don't you think you're being a bit harsh on Google. I think if advertisers focused on selling Barney dolls on MyAdSenseSpace it would go very well ;)

Edit: Farmboy, we posted @ same time & it seems we were thinking along the same lines.. Their contextual ads are not helpful at MySpace.. If they focused on the kiddie market, it would go better as kids nag the hell out of parents to buy what they saw on ads...but are text ads really that effective on kids?

[edited by: Clark at 3:40 pm (utc) on Feb. 1, 2008]

4:03 pm on Feb 1, 2008 (gmt 0)

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A few people have made reference to MySpace traffic being "kiddie" or "young" traffic. I'm wondering what you are basing that on. Of course it's very difficult to get real numbers but everything I've read lately suggests that well over half of MySpace users are over 25 years old and that the percentage of older users is trending upward sharply. I understand that it's a common perception that MySpace is place for teens, but how valid is that perception currently?
4:04 pm on Feb 1, 2008 (gmt 0)

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...but are text ads really that effective on kids?...

I suppose it depends on the age and the ads.

------------------
Be Popular With Boys
Get more dates than
you ever imagined!
www.example.com
------------------

The above ad shown to 14-18 year old girls would probably generate a lot of clicks.

FarmBoy

4:12 pm on Feb 1, 2008 (gmt 0)

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The above ad shown to 14-18 year old girls would probably generate a lot of clicks.

Possibly, but monetizing that traffic at the advertiser's end wouldn't be easy.

4:14 pm on Feb 1, 2008 (gmt 0)

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Heh heh, good point :)
Maybe they should make a special version of adsense that delivers contextual musical ads?

Jingles work on TV, why not on MySpace? (except that it already annoyingly delivers music as soon as you hit any myspace page...)

4:26 pm on Feb 1, 2008 (gmt 0)

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Maybe the contextual aspect just isn't producing the ads that will appeal to social site visitors.

Bingo. Running contextual direct-response ads on MySpace is comparable to running network-wide "Call 1-800-000-0000" TV commercials for specialized products or services on "American Idol." That doesn't mean MySpace users or "American Idol" viewers are a worthless audience; it just means they aren't inclined to make purchases when they're networking online or watching a talent contest. They might be ideal candidates for a "Drink Red Bull" or "Stop smoking with Nicoban" awareness-building campaign, depending on the audience demographics.

BTW, I think Hobbs makes an excellent point with the observation that specialized niche sites may be less vulnerable to competition from MySpace, etc. than more general sites are likely to be. How many MySpace pages are likely to attract ads (and clicks) for industrial widgets, Elbonian barge cruises, derivative instruments, or hospital supplies?

4:29 pm on Feb 1, 2008 (gmt 0)

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Maybe the contextual aspect just isn't producing the ads that will appeal to social site visitors.

Which is why Brin noted the "failure to monetize", and why this thread was started. But I still believe it's about the social networking traffic, not necessarily the ads.

Even if Google pushed display ads (which we could assume would be something similiar, if not the same, as their PPA ads) -- they still haven't cracked the PPA nut. Why would that nut be cracked through Myspace, an entity generating millions of pageviews from users who don't seem to care about any ads? There is no defined niche and most users are on Myspace for only one reason... (to look at other people and to socialize).

Like webpixie noted, Myspace traffic isn't necessarily "kiddie" traffic. The number of 25-40 year old who have profiles is staggering. As I eluded to above, I don't think it's about the age group, or the type of ads necessarily (contextual or image-based). I think (as moTi pointed out), it's not the best platform, or the right type of audience for good ROI.

Not saying it will never monetize, but it doesn't appear to be the best scenario right now.

4:38 pm on Feb 1, 2008 (gmt 0)

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Even if Google pushed display ads (which we could assume would be something similiar, if not the same, as their PPA ads)

Google's advertising ambitions go far beyond AdSense direct-response ads. That's a matter of public record.

When you think of MySpace, think of Google delivering "branding" ads (both conventional display ads and rich-media ads) for beverages, cars, consumer electronics, and other mass-market products or services.

4:39 pm on Feb 1, 2008 (gmt 0)

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I understand that it's a common perception that MySpace is place for teens, but how valid is that perception currently?

well, then delete the "underage". really, doesn't make any difference. just wanted to emphasize that a serious fraction of the users aren't even capable to buy things on the net. plus they mostly got only a small budget.

note the other factors: distraction, no shopping mode, dully ads.

re: display ads. fine, let's do branding. but, as said, advertisers budgets are sucked dry quicker than they'd prefer. too many page views per visitor, too little attention span, too little time between clicks. nah..

4:44 pm on Feb 1, 2008 (gmt 0)

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"The number of 25-40 year old who have profiles is staggering"

guys remember this is not verified so a 10 year old who doesn't wan't to be a 10 year old can now be a 39 year old.

I have no trust in the actual numbers they need to give the possible % variation in the actual or possible number not just numbers per age group this is a complete forest.

4:54 pm on Feb 1, 2008 (gmt 0)

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a 10 year old can now be a 39 year old

..or - more common - a 99 year old or a 101 year old..

This 120 message thread spans 4 pages: 120