Bad social media. Bad.
Bloomberg reports that MySpace is turning parent News Corp. into a toxic stock, after the MySpace division said it would miss revenue targets and Wall Street analysts, in technical terms, immediately threw up. Bernstein quants downgraded News Corp. price targets 13% last week, sending a shiver through Rupert Murdoch.
Why? Bloomberg blames advertisers worried about brand control. The theory goes that advertisers fret their brand may appear on MySpace next to crazed user-generated content (drunken college students, racist language, photos of cats), which creates a horrible cascade of advertisers shying away, declining revenue, and investors who avoid the stock.
But we think the real reason is social media ads don't work.
This isn't rocket science, folks. Internet advertisers track results at incredible detail -- and what really grates on advertisers is when ads fail to perform. Social media ads, such as vertical banners on Facebook, have notoriously low click-through rates -- lower than the U.S. average response on banner ads of 0.14%, and much lower than the 0.75%+ click-through rates advertisers get on ad networks and behavioral targeting. Ad responses are lower because the consumers using social media are busy chatting, typing, uploading videos, and playing games with each other. You don't respond to an ad if you're playing with your profile.
Advertisers need to watch and understand this trend because U.S. consumers are rapidly migrating to social media sites. In September 2006, 30% of U.S. internet users had created a profile on a social media page such as MySpace or Facebook. Last month, that number was up to 60%. With 24 hours in the day, every hour on social media is an hour not spent clicking on Google results or traditional banner ads.
The solution? We don't have one. We think Americans are dramatically changing their internet behavior from "hunting" to "doing," and that will put a squeeze on the entire ad industry. Watch BusinessWeek in the next few days for our take.
(Photo credit Simply Milo.)
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