Monetizing social media: Still an uphill climb; Some friends may be worthless
News Corp. confirmed what had been reported for weeks: Fox Interactive revenue isn't going to hit its targets. The problem: Social networking is still very hard to monetize. Does inventory matter when you can't sell it?
Peter Chernin, News Corp.'s operating chief, delivered his state of MySpace (actually Fox Interactive) address on Wednesday (Techmeme) on an earnings conference call:
This is a very healthy business with significant progress over multiple fronts. We continue to expand our leadership in the fastest growing consumer area of the web. But let me begin by saying yes, we will fall short of what were very aggressive initial projections of 80% growth for this fiscal year.
Translation: OK, now we've put it on the table.
But it’s worth pointing out that in a tough economy our shortfall will be slight -- roughly only about 10% and to put it in some context, FIM is nearly a billion dollar revenue business; a business that is not even three years old. And to give you some comparisons, it took Google five years to hit a billion dollars; it took Yahoo eight years and we’ll get there in a little over three years.
Translation: We can grow from here.
It’s also worth pointing out that FIM’s revenue growth is tied to an entirely new category of advertising inventory. Social media has only been around for a few years and gaining market acceptance for any new category will always have its challenges. But as the creators of this new media, as the leaders, we will be in the forefront of developing the tools to make it work. We’re incredibly optimistic about the future of social media and our role in shaping it.
Translation: Social networking inventory is difficult to monetize, but it's early days. Relax folks, says Chernin as Rupert Murdoch breathes down his neck.
When it comes to specific challenges we’re facing, I think that there are three areas worth noting.
First of all, the explosive growth of social media has created an enormous amount of advertising inventory. As pages on MySpace and Facebook continue to grow, the lack of scarcity creates a liquidity challenge. We’ve spent a lot of time developing prime real estate opportunities to draw the big advertisers and big CPMs -- particularly with the MySpace Homepage and features like MySpace TV. We’re focused on migrating more of these big brands and their dollars to MySpace.
Second, people who visit sites like MySpace are there for an entirely new form of Internet activity. As a consequence, the on-line ad models that have driven the Internet economy in the past need to be refined for the social media universe. New methodologies are required, which we are actively developing including our HyperTargeting initiative and optimization efforts.
Third, it’s still difficult to quantify the economic value of a friend in the social media space, particularly with advertisers who have long histories with the metrics by which they value their brand spends on TV and on radio. We’re working with these major brands and their agencies to educate, innovate and experiment in the social media and to develop the right set of metrics. We’re making headway and it remains a work in progress.
Translation: Social media has a supply and demand problem. Some so-called friends may be worthless so we'll never monetize everything.