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Think before Advertising on Social Networks

More than half of American consumers with Internet access use social networking services (SNS), such as Facebook and MySpace, and penetration will continue to grow. Great advertising opportunity, right? Think again.

According to IDC, consumers are also spending ever-greater amounts of time on social networks, a fact that has advertisers drooling over the opportunity represented by SNS. But, there's more to this story.

IDC found that consumers who use SNS also tend to visit the services often and spend a lot of time per visit. More than three quarters of SNS users visit at least once a week, and no less than 57 percent visit at least once a day.

During each session, 61 percent of SNS users spend at least 30 minutes on the respective site or stay logged in permanently, and 38 percent spend at least one full hour per session.

There are four major reasons why consumers use SNS -- to connect and communicate; in response to peer-pressure; for entertainment; and for work-related purposes.

However, advertising does not factor into consumer motivations. In fact, users are less tolerant of SNA advertising than the best tolerated forms of online advertising.

Ads on SNS have lower click-through rates than traditional online ads (on the Web at large, 79 percent of all users clicked on at least one ad in the past year, whereas only 57 percent of SNS users did), and they also lead to fewer purchases (Web: 23 percent; SNS 11 percent).

"The thinking has been that the popularity of SNS will attract a big audience and generate a lot of traffic, which in turn will produce enormous amounts of user-generated content (UGC) and therefore advertising inventory -- without any expenses for editorial staff or content distribution deals," said Karsten Weide, program director.

All of the above has proven true -- except that almost invariably, SNS have had a hard time selling this inventory.

One of the potential benefits of SNS that the advertising industry has discussed is whether people's connections (i.e., whom a user knows or is linked to) could be used for advertising. For instance, publishers could show a car manufacturer's ads to a user's contacts because that user's online behavior has indicated that she is interested in a particular brand of cars.

There has been some indication that this "social advertising" might be more effective than behavioral targeting. However, that idea is apparently unproven. Of all U.S. Internet users, only 3 percent would allow publishers to use contact information for advertising.

IDC expects that lower-than-average ad effectiveness on SNS will continue to contribute to slow advertising sales unless publishers get users to do something beyond just communicating with others.

If the major services succeed in doing so, they will become more like portals, such as Yahoo! or MSN, and they will come closer to the audience reach of the top services. If that happened, publishers would be better able to monetize their SNS via digital marketing.

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