The "same-old" is Google, whose innovation was to turn what was the customer (we who search) into the product, and selling us to their customer - the advertisers. It was brilliant, and transformed the very nature of internet monetization.
Social is a bit different - most who use it are less susceptible to, and rarely click on ads. After all, the idea is to connect with friends, share - not to click on random ads. With that, this aspect of Facebook's Q2 (second quarter) numbers should give pause:
- Earnings: $1.18 billion
- Earnings from advertising: $992 million (84%)
- Average monthly users: 937 million
- Total quarterly users: 2.865 billion
- Average revenue/user/quarter: $0.41 ($1.23/year)
At ~1 billion users, Facebook owns ~14% of the planet's population; but even the user base doubles this coming year (nigh impossible), the current revenue/user puts them at just $8.5 billion/year. Hardly "big-time," especially given their initial $100 billion valuation. (For context, Apple expects to earn $13 billion from iTunes alone in 2013.)
Key to social networking is the ability to publish what you're doing or thinking right now. This requires a mobile, connected device. The problem of course is that mobile, connected devices have to be small enough to go anywhere, and if the screen is cluttered with ads, there's no room to express yourself or see what your friends are up to, which defeats the purpose, and turns users off.
While Facebook started out on PCs, it's pretty clear that their future is mobile. But they've also admitted they don't know how to turn those users into $$.
The approach they're most bullish on is Sponsored Stories - where if a company buys the service, their ads show up in the right pane (on a PC), along with names of your friends who Liked it, and with that endorsement, the hope is that you'll Like it too. Facebook said they're now earning $1 million/day from these ads, with about half of that from mobile.
Even if this does create meaningful mobile revenue, it's not how Facebook becomes "big," or how social networking gets through puberty in a compelling way. Ads are just plain intrusive on a small screen; moreover, mobile click throughs need to go to mobile-enabled sites, which are more difficult to turn into actual sales for the advertisers.
Despite Google's brilliance, click through rates have declined from 5% initially to about 0.3% today. Google is still a success, but now with logarithmic (or less) vs. exponential growth.
If social media rely on ads as their primary revenue source, they will only make money by interrupting human interaction, not enabling it or enhancing it. It will however have the advantage of being not at all transformative, but at least it will be irritating.
I hope they are thinking bigger. I hope that Sponsored Stories sparks in the very smart minds at Facebook, Twitter, etc., ambition to innovate yet one more business model; one not based on the user's propensity to click random links, but instead attuned to the interaction between people, aware of what they care about, and savvy about how they will express it. Imagine how effective a company would be when armed with this kind of insight! Let's call this IP - Interaction Perception.
In fact, the smart approach would be to eliminate advertising altogether (reduce distraction and improve satisfaction) and focus instead on collecting data and creating algorithms that can (without infringing on privacy) assess and predict interaction, preference, and passion based on how we Facebook or tweet or tumblr.
Advertising is about creating urgent awareness (you learn something and are then compelled to act). The more savvy or sophisticated the consumer, the less effective ads become. Most ads suck at doing both - they at best accomplish awareness.
The type of contextual engagement that would be possible with interaction perception makes advertising obsolete. With IP, you could pinpoint exactly where your target audience tends to be when they're most likely to want your product, and literally place yourself at that location. You would know the 5 or 10 trend-creators for your product that you need to reach, and through whom you can create immediate and pervasive market penetration without ever "advertising."
foursquare for example creates incentives for people to announce their location, and then works with businesses to create special offers for frequent visitors. They can now identify "magnets" that bring people together, track traffic flow from place to place, determine brand preference, and much more. Today, foursquare is still using their knowledge to help merchants better target advertising/offers on their site, but this is just the beginning. While much of the insight today is location-centered, I'm sure this will not be the case tomorrow; they'll be able to get predictive enough to know when you need your next coffee, and potentially be able to vector a mobile coffee service to where you are. The possibilities are endless.
Unlike search, social networking is implicitly permissive. We never gave Google the right to track our behavior; we became angry when they started doing that and figured out how to disable their oversight. But we choose to publish what we're doing, with whom, and how we feel about it on Facebook/twitter/etc. Sure, some prefer to keep it private, but most don't - they want to share.
Social networking is about the only way to capture interaction perception - the problem is the "innovators" in social networking are too busy trying to sell ads, despite the inherent diminishing returns.
Rather than interrupt our experience with ads, why not infer and fulfill our needs with insight?