Adotas

Where media buyers start online

Featured Author

Author Photo

Anand Rajaraman co-founded Kosmix in 2004. Rajaraman has been on the Internet search forefront for more than a decade. He created and co-founded Junglee, the first shopping search engine Amazon acquired the company in 1998 for $250 million.

Rajaraman also launched Cambrian Ventures in 2000. Cambrian Ventures has successfully funded several start-ups, including Efficient Frontier, Kaltix (acquired by Google), Neoteris (acquired by Juniper), Transformic (acquired by Google), TheFind and Aster Data.

More articles by Anand Rajaraman





Features

Connect STRANGERS To Monetize Social Media

Written on
May 20, 2008 
Author
Anand Rajaraman  |
Share
Connect STRANGERS To Monetize Social Media

herd.jpgADOTAS EXCLUSIVE — A look at the rate cards shows that CPM rates for social media sites vary widely: $15-20 for TripAdvisor, $15-45 for LinkedIn, and less than $1 for Facebook and MySpace. Why do advertisers value these sites so differently, even though they are all “social media”? I spend much of my time researching and observing these trends to determine which Web sites are most valuable to advertisers. There are three properties that determine a site’s value: audience demographics, affinity and herding. Let me go into each one and talk about the connections between them.

Audience demographics:

Sites such as LinkedIn have a targeted demographic — business professionals — that is of great value to advertisers. They can place site-wide ads and know they are reaching a certain demographic. So the simplest decision for advertisers is to pick a social media site that caters to the right demographic.

Not all social sites have such a lucrative demographic. Sites like Facebook, MySpace and TripAdvisor have much larger, more diffuse audiences that are great for making connections but not of great value to advertisers unless their audiences can be segmented and targeted with greater granularity.

Affinity:

Whether such targeting can be effective is determined by the second property — a metric that I call affinity. The “affinity” of a social media service is the average closeness of relationships between a content creator and someone who views that content. The affinity of Facebook is very high given the multiple close connections people enter into, while the affinity of TripAdvisor is very low. Here’s the key observation: There is an inverse relationship between the affinity of a social media service and its targetability.

Here’s why. A Facebook profile gives very little information data about the viewer, other than the fact that she is a friend of the profile creator — namely, Jane is a friend of mine. When Jane views a TripAdvisor travel review like touring Istanbul, she is definitely interested in traveling to that location, giving advertisers more data to target Jane. Social sites with high affinity, such as Facebook, have low CPMs, while sites with low affinity, such as TripAdvisor, have higher CPMs. Another way of stating this axiom is: Web sites that connect strangers (TripAdvisor, Yelp) are more valuable than Web sites that connect friends (MySpace, Facebook).

Taking this one step further, I did an exercise of estimating the affinity of social sites and mapped affinity against CPM. The resulting graph shows the landscape of affinity versus targetability for social media sites (a caveat — for some of the sites, I had actual data and the others were extrapolated.) For most of the sites, there is a strong inverse proportionality. Social networks and photo-sharing sites have very high affinity, and therefore lower targetability, than e-mail. This is because we often e-mail people we don’t know or know only in passing. Instant messaging has the very highest of affinities because it gives people the right to interrupt you at any time.

Herding:

here still are a couple of outliers that should be explained. Video-sharing sites, such as YouTube, have low affinity as over 90% of their user base views videos posted by people they don’t know. However, the targetability is lower than would be expected, because of a compensating factor that I call herding, the third property of a social site. Most people see videos featured on lists such as “Most Popular,” which reduces the targeting value of such videos to advertisers. It’s tough to know what ads to run when “Most Popular” videos can run from Michael Jackson’s “Thriller” video sung by prison inmates to Al Gore’s “Inconvenient Truth.” This is also evidenced in social news sites like Digg.

Social media sites constantly grapple with what they can do to increase their CPMs.

In my opinion, there are two options today though I am sure others will think of more:

  • Create sections of a social site that are more topic-oriented, and less about individuals. For example, band pages and groups on MySpace, and Facebook groups, or Ning groups around common interests.
  • Mine individual’s profiles, or their off-site behaviors, to target them behaviorally rather than contextually. This approach is tougher and carries with it dangers of privacy violations, as witnessed by the Facebook Beacon fiasco, but there are ways to think about and implement this approach.

As I continue to monitor and analyze behaviors and data on sites, I would love to hear your ideas. After all, social sites are among the most popular sites on the Web and we need to evolve our understanding of their advertising potential.





Reader Comments.

Great article. The stratification of CPMs within social media is probably just beginning. The logical implication would be that it will hasten the emergence of engagement or action based metrics that normalize for the differences in behaviors on these various sites.

Posted by Bill Hildebolt | 1:16 pm on May 20, 2008.

Leave a Comment

Add a comment

No Tags
Article Sponsor

More Features


  • Right now, at the beginning of 2012, what are you watching the most closely for its ad and marketing opportunities?

    View Results

    Loading ... Loading ...

Latest News

News Archive

Spotlight

Sponsormob Leads the Way Into RTB for MobileADOTAS – For more than half a decade, Berlin-based tech firm Sponsormob has remained relevant in an industry characterized by [...] more...


Adotas Partnership