Why false hopes for Twitter and Facebook are fine

Speculative bubbles can be a good thing. The fiber-optics laid down in the 1990s telecom gold rush created the high-speed backbone for today's internet. The 1960s space race gave your kitchen a microwave oven.

So it’s swell that the business world remains gaga over social media – because we’ll have to pass through the valley of silly investments with little return before we achieve the future of free worldwide connectivity.

Social media will never be monetized. Here, we explain why.

First, understand the bubble.

Google the phrase “(social media site) valuation” and you’ll see scores of articles talking about Facebook being valued at $15 billion, potential returns for Twitter – and none are based on reality. Investors or big software companies want a piece of social media because they think it will attract advertisers, who in turn hope for exponential returns on their ad media dollars.

But ad media dollars will never drive huge returns from social media sites. Valleywag noted recently that Facebook is consistently one of the worst performing sites for advertiser response, with CTRs well below the 0.14% national average. In April, Bloomberg reported that MySpace's abysmal ad performance was turning News Corp. into a toxic stock. Brian Morrissey at Adweek wrote that social media metrics are still a work in progress. And we've noted that Twitter's millions of users, if you predicted profits generated from advertising results, are worth about 72 cents each.

Social media will never generate acceptable response, because the users are looking elsewhere. They are playing, not reading; socializing, not searching. Widgets don't work because the user modality has changed.

So where will social media go to survive?

In the near term, social networks must partner or be acquired by larger entities who can make money elsewhere from sources other than advertising, such as their broader communications or software portal. Google could pick up Twitter and play it forever as a freebie, hoping to pull 1.7 million users into more Google ad searches. Microsoft is intrigued by snapping up Facebook's chatting audiences, even if they don't pay attention to third parties, to bolster the branding and awareness of other services. We'd hate to see a FacebookVista, but who knows? The Facebook online operating system may someday marry Vista, to make it all work better.

Then, freedom arrives … and no one makes money.

In the long term, Charlene Li will be proved right: social nets become like air. Then the functionality that enables communication will break off from major portals and become standard utilities attached to everything ... and no one will make money off them.

Imagine a 2011 iPhone with video and internet and GPS that allows you to push and pull content anywhere in the world for free. Why do you need to access a socialmediasite.com portal? Play this forward to the time when the cost of providing networking services is so cheap, it's almost zero. Social media becomes a tab on every device; you become the center; no portals are necessary; advertisers can't intercept you, but then, their third-party funding has become irrelevant.

To fund the transition to the future, we need unrealistic hopes.

Which brings us back to speculation. We won't get that future technology for free, so people will fund it along the way with false hopes on social media return. And thus, the hype machine is necessary. Speculation leads to innovation, and innovation leads to future solutions. Tomorrow's future translucent 3-D video glass pod is in a garage somewhere, and the 12-year-olds putting it together do so only because they want a piece of the action.

Jacob Freifeld noted back in 1996 that most speculative bubbles have an underlying truth: a "permanent advance" that causes unreal hopes initially, but remains after the frenzy abates. Social media is such an advance in how people create and connect.

It will come. We'll all be connected with telepathy for free. But it's going to take decades and a lot of bad initial funding to get there. So advertisers and marketers, stop complaining about poor Facebook results. Throw your budget in, and hope for the IPO.

Photo: Neil Piddock.

Why MySpace is now slathered in lipstick

MySpace hints at desperation with a new design in which more than 50% of its home page is taken over by one giant ad. We don't mean an interstitial, one of those full-page web ads that temporarily interrupt you on a site before you click through to the real site's content. We mean, most of the page is now a screaming billboard.

The redesign suggests MySpace is having a tough time making its ad inventory work. Don't trust us; Bloomberg reported in April that MySpace's abysmal financial performance had turned Rupert Murdoch's News Corp. into a toxic stock. Valleywag noted recently that MySpace click-through rates are a little better than Facebook's, but at 0.10% click-throughs, still aren't anything to write home about.

But listen, MySpace, we're trying to help. Look where your media peers have gone before. The $6 billion radio conglomerate Clear Channel once ran more than 12 minutes of radio spots per hour. Audiences began bailing, Clear Channel was forced to launch a "Less is More" campaign and reduce ad time per hour by 23% to 9 minutes and 20 seconds, and now the new Arbitron systems show that the radio audience may have slipped for good, with ratings down 30% or more in many markets.

Which brings us back to MySpace. McDonald's and other advertisers are probably delighted they can now take over the MySpace home page. But as Ian Schafer, founder of the internet strategy firm Deep Focus, just noted on his blog, social media sites and related widget applications are going to have to show they can be a viable advertising model. The root problem for social media is that users have a different modality, and while in heavy socializing mode they are less receptive to advertising messages.

All of which explains why MySpace has put on more ad makeup.

Widgets work, if you like a pointless waste of time

Whoops, did we say that? Let's review the data. A new report from Flowing Data found nearly half of 23,160 Facebook apps fall into a "just for fun" category — meaning users play with the apps with scant focus on the marketing message.

We promise. We won't say we told you so. Widget applications actually have uses for branding and for extending a web presence far beyond the walls of your site. Brilliant creative and originality inside a widget can help a message get through. For certain uses, such as searching for mortgage rates, a mini-app makes a lot of sense.

But it's worth remembering amid all the hyperbole, silliness still rules. Thanks, Steve.

Nip/Tuck proves computers are 100% stupid

We just found out that our face is 100% perfect. Which makes sense, if thinning hair, 40something wrinkles, sweaty pores and crooked ears are ideal. But thanks, Nip/Tuck, for the pick-me-up.

The Nip/Tuck widget that told us so is a good example of how to build a viral app. We wrote a while back that most widgets don't work, because the mini-web applications getting passed around in social space hit consumers when they aren't paying attention to the marketing message. (Tossing sheep does not an ad response make.) Many, many companies are launching widgets in the hope to engage consumers and to go viral, but successful transmission is hard to manage. Only a fraction of all widgets make it big, so those remaining have to work on their own merits -- do they build brand awareness and do they drive an acceptable response rate?

But Nip/Tuck's widget, which rates your face on beauty, meets the rare criteria of making widgets work:

+ People checking social connections may be in the mode to hunt for beautiful entertainment
+ The app reaches the right target ... us narcissists
+ The app engages users in the core brand ... cosmetic entertainment?
+ Even if the app doesn't go viral to reach millions, we bet it would drive an acceptable response rate of new viewers to the show.

Nip/Tuck obviously got this right and ... hey, wait a second. What if the marketers behind Nip/Tuck read our BusinessWeek column that widgets don't work, so tracked us down and loaded the app to tell us we're 100% beautiful? Maybe this is part of a secret drive to convince bloggers to write about Nip/Tuck. Nip/Tuck. Tuesdays 10 p.m. on FX. Naw ... that wouldn't work at all.

(App is here. Via Lee Washington and Brandflakes.)

Paramount's VooZoo: This widget will work

We've been critical about internet widgets, or mini-apps, which promise advertisers the chance to go viral with their marketing message but often fail to do so. Paramount, however, has found the sweet spot with its new VooZoo app on Facebook. VooZoo allows users to grab small snippets of famous films (from the Paramount library) and forward them to friends -- potentially a blockbuster application in that you can tell your boss to show me the money!

The Paramount widget ties three things together beautifully: (1) the user need to interact socially, (2) the application itself is the message, and (3) the message is tied closely to the sales channel. A little button at the tail end of each film clip allows you to order DVDs from Paramount. Any time you message someone with a clip from a film, you are forwarding an undeniable ad for that same film.

The application was developed by FanRocket, an agency specializing in viral marketing within social media. By making the sales message equal the user's social message, FanRocket got this viral app right. We also note the bravery Paramount shows by giving away clips from its films -- a good lesson for any marketer in the social media age. If you want to make it big, you have to give up some control.

(Note of confusion: The app is VooZoo, the clips are called Voohoos. Whatever. Add it to Facebook here.)

Beware of GVI: Google Visual Inventory problem

The more we think about the Google Visual Inventory problem, the more we realize it threatens all internet advertisers. It's simple. As consumers shift to mobile devices, interface screens get smaller -- leaving less visible room for ads. Google, and other advertisers, run out of visual inventory.

Ad inventory is the bread-and-butter of making money online; it is why it takes you three clicks, through three screens, to find local weather information at weather.com. More visible real estate = more ad space to sell = more revenue, so sites like weather.com have an incentive to push each user through large, multiple screens of data. Today Google crams nine or more ads from search results on a PC screen. Alas, only one ad will fit on most mobile phones. As millions of consumers adopt mobile internet in the next few years, Google and advertisers will have a hard time finding shelf space.

(Now, if Google were really worried, they'd probably want to start designing a new cell phone interface ... oh, never mind.)

The GVI challenge is one of several cracks under advertisers' feet. The second serious challenge is that online users migrating to social media are no longer paying attention to ads, since they are focused on engaging socially with friends. Sure, Slide may reach 140+ million users with widgets each month, but if you write us with the names of three ads you recall seeing while using SuperPoke or FunWall, we'll send you a prize. And now Danah Boyd notes a third scary trend for online marketers: not only are social media users ignoring ads, users are beginning to lock unwanted messages out. In a recent speech Danah

... basically told this room full of marketers desperate to get on teens' friends lists, that those teens think that's creepy and invasive. Why? Because it's THEIR Space -- even if it's public (which most teen profiles aren't anymore). She had a great analogy of teens telling their parents, "It's MY ROOM." And the parents telling teens "It's MY HOUSE." Just as teens put "keep out" signs on their bedroom doors, teens have created "structural walls" to keep everyone but their friends out on social networking sites. (Tx Anastasia Goodstein, for the report.)

Ouch. Less ad space. Less-attentive audience. Consumers doing something other than listening, and consumers more than willing to block out your peripheral pitch. GVI is more than a physical screen problem; it's a metaphor for the new mindset of the MySpace generation who are crowding out ad messages with their own portals to private communications. Egad, marketers -- suddenly logos on cotton T-shirts are looking fine.

Widget advertising results

Hmm. Maybe that industry association should start posting whitepapers.

Why widgets are a bit like Frisbees

Tom Giles, technology editor over at BusinessWeek.com, has put together an intriguing debate on whether widgets are the future of online advertising. Widgets, as you know by now, are little online applications where web users can play around with graphics and data, and potentially pass them on to thousands of their friends. If a web banner ad and video game had offspring, it would look like a widget. Marketers are pretty excited about this stuff because all those young users inside MySpace and Facebook have been ignoring traditional banner ads, and widgets offer another way to grab their attention.

Some widgets, like the iLike music app, take off -- but most do not. So, to play maverick, we gave BusinessWeek a column saying widgets are vastly overrated. Sure, it's nice that your ad can now wiggle on a computer screen, but we caution, marketers don't buy advertising -- they buy customers. And the only way to acquire a customer is to reach someone when they are paying attention.

The trouble with widgets is they are a bit like a Frisbee being tossed around by young women at a park. You could put a corporate message on top of the plastic disk, but will those users really remember it? And if those women tossed you the Frisbee, would you pay attention to the Frisbee's logo -- or to the new friends you just made in the park? Consumers have different modes, and if you reach them when they are not receptive to a marketing message, you've just wasted an impression.

Widgets can work, but only if they meet four criteria. Check out our point of view in BusinessWeek.

Google slippage, or how to predict a decline

So analysts bashed Google stock today after seeing that pay-per-click ad revenue is slipping. We've noted that Google Trends shows global searches for common phrases are sliding as well, with demand down about 50% in the past four years. Seems Google is also playing with its formulas to wring more money out of click budgets -- a potential sign of desperation. Google may be in decline.

Which brings up a point: Why can't anyone see changes like this coming? Take any infatuation -- AOL, Google, MySpace, Facebook, widgets, real estate, the 17th century tulip craze -- and people jump in as if the ride will last forever. But the reality is almost everything in life follows a bell curve path toward the future. By the time you hear something is hot, chances are that same something is about to peak.

Look at your own life. If you work in marketing but aren't CMO or agency president yet, you're probably in your 30s or 40s, have rising income, good job prospects ... but chances are, eventually your earnings power and title and circle of colleagues will peak, and then diminish.

In marketing, clients and agencies are always hungry for an edge, so they tend to disregard the future downward slope and leap into every bubble. We recently had the opportunity to talk with BusinessWeek.com about widgets, and the reporter mentioned that everyone who produces these things proclaims them to be the future of marketing. Uh-huh.

Don't get depressed. Just, when planning your future, remember that what goes up must come down.

2008: The 5 reasons why banner ads are changing

Such a simple idea, but such a long time coming. Tribal Fusion is one of the many ad networks exploring personalization of banner ads, in which the ads take on "widget" capabilities for the user to input and manage data. These types of banner ads allow customization of the message to the target audience or geography, so, say, a home shopper reading a real estate site in San Francisco seems a very different pitch than the reader in Indianapolis.

Tribal Fusion claims this personalization + widgetization increases conversion rates by up to 80%. Marketers should watch this trend, as five aspects of online marketing are converging:

1. keyword search (responding to search inquiries)
2. banner widgets (ads with software-like capabilities including product selection, credit card input and checkout)
3. dynamic ads (with variable creative or copy usually personalized to the viewer profile)
4. behavioral targeting (showing ads only to users who fit specific profiles)
5. ad networks (showing ads across hundreds or thousands of sites, rather than single sites, targeting user profiles and not content)

Finally, the stars of online targeting and creative are in alignment.