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Aug 17th, 2010 | By | Category: Featured Articles

Social network advertising

Social Media network advertising is a term that is used to describe a form of Online advertising that focuses on Social Media networking sites. One of the major benefits of advertising on a social networking site (Facebook, Twitter, MySpace, LinkedIn, YouTube, and many others) is that advertisers can take advantage of the users demographic information and target their ads appropriately.

The Social Network Advertising Market

It’s  predicted  that the  social network advertising market will continue to grow – reaching estimated $2.7 billion in spending by  the end of 2010 and  $3.8 billion in spending by 2011. However, a large portion of this spending is predicted to be coming from the United States and European markets. As Internet usage continues to grow in other parts of the world, and Social Media continue to proliferate, advertising dollars on Social Media sites outside of the US will begin to play a major role.

Ten years after its founding, Google has an approximate $168 billion capitaiziztion, making more in profit  than all of America‘s airlines and car companies combined.

Today the advertising industry has over an estimate of a $300 billion market. It not only supports free media, such as traditional over-the-air broadcast, but also subsidizes most paid media, from newspapers and magazines to cable TV, allowing them to be much cheaper than they would otherwise be. And now, with the Web, a medium on which media have no privileged position, it supports everything else.

Advertising Drivers

Banner AD 

  • Impressions (model of payment per thousand viewers or listeners – CPM)
  • CPC – Cost Per Click
  • CPT – Cost Per Transaction (example Amazon Associates Program)

Lead Generation

Fix Sum, (advertisers pay for the names and email addresses of people who have been attracted by free content, or for information about those consumers. Advertisers can sponsor an entire site or department for a fixed sum, not determined by traffic. They can pay to be included in web search results or product placement and pay to have their brand or goods included on the site).

The result is that while traditional advertising is limited online, the way Google has redefined advertising—connecting products with expressed desires—is still growing fast.  Eric Schmidt, Google‘s CEO, has estimated that the potential market for online advertising is $800 billion, or two and half times the total advertising market, online and off, today. It‘s easy to see why companies only pay for results. You‘re sure to make a dollar for few pennies you invest on marketing. The sky‘s the limit. Popular saying illustrating how difficult it was to reach potential customers using traditional advertising is attributed to John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

There have been many claims that Social Network Advertising will revolutionize the online advertising market. One famous for stating, founder of Facebook Mark Zuckerberg, announced that “For the last hundred years media have been pushed out to people, but now marketers are going to be a part of the conversation.” No doubt social network advertising is a significant new way of reaching customers, but social media is far from being mature.

There are three major classifications of Social Network Advertising:

  • Direct Advertising that is based on your network of friends
  • Direct Advertising placed on your social networking site – usually uses demographic information from your profile.
  • Indirect Advertising – usually building a brand – by creating ‘groups’ or ‘pages’

Written by – Free The Future of a Radical Price by Chris Anderson

“Facebook friends are a classic unit of reputational currency. The more friends you have, the more influence you have in the Facebook world, and the more social capital you have to spend. Indeed, most of the value of Facebook is in the fact that it has created perhaps the world‘s largest closed market of reputational currency, which is the foundation of its estimated multibillion-dollar valuation.”

Nonetheless, trying to figure out exactly how many billions of dollars Facebook’s worth is a tricky matter. It‘s probably some multiple of the users it has and the number of connections between them, which is what friending someone creates. That act is an exchange of reputational currency, and if that currency is valued at something, it must be worth it to that person providing it. However, how much and what does that imply for Facebook‘s valuation? By putting a dollar value on a friend, Burger King was essentially offering a marketplace estimate of Facebook‘s value. Blogger Jason Kottke added it up: Facebook has 150 million users and the average user has 100 friends. Each friendship requires the assent of both friends so really each user can, on average, only get credit for ending half of their friendships. The price of a Whopper is approximately $2.40. That means that each user‘s friendship is worth around $5 or $12. Do the math: $12/user ? 150M users = $1.8 billion valuation for Facebook

As Kottke notes, that‘s considerably less than the $10 to $15 billion that the social network‘s investors, including Microsoft, had valued it at in 2007 and 2008. However, the economy crashing and Facebook still unable to find a way to make money faster than it is spending it, perhaps Burger King had it more right than Bill Gates. (Indeed, leaked investor documents in early 2009 showed that Facebook‘s internal valuation was only $3.7 billion in July 2008 and may well have fallen since.”

The point is to this article is everyone needs to focus  and spend their time on Social Media Networks and less on the phone. I personal believe, there isn’t anything like talking to a someone in person over a cup of coffee. That said, who has the time for that?

References and Credits: Chris Anderson

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