Social Networks' 2008 Tightrope Walk

Bubble, bubble, toil and trouble....

My musings on whether social media has become a bubble has stirred up a bit of buzz.

But here's the real issue: in order to develop a solid revenue model, social networks must walk a very thin line between pleasing marketers without alienating their users. The models and examples exist today; the question is: will media companies and marketers resist the urge for the quick hit and exercise the retraint, wisdom, and patience to build a mutually beneficial relationship with their audience?

Paul LaMonica at CNN Money picked up on it earlier this week and so when I was in New York we had a wide-ranging discussion which he wrote up here.

The blog Socialized, took it the wrong way, and thought I was an idiot. I corrected her interpretation and she kindly put up a new post to draw attention to my comments.

To save you all the trouble of wading through all the various links and comments, here is a succinct summary of my key points.

1. The bubble is in VC funding and start up companies, not in consumer behavior. I elaborated on this in this post and as I told Paul the trend of consumers using social media is "unequivocal, inexorable, and irreversible." Just as consumers kept using the Internet after the 2000 bubble burst, they will keep using social media no matter how much money the VCs lose or how much doom-and-gloom comes from the media. Smart marketers will keep their eyes on their audience.
2. The social media business model creates greater tension than other media businesses. Any media business has to manage the tension between editorial and advertising. But here the tension is especially acute. One of the drivers of social media's growth is that consumers are sick of the ad clutter in other media. In addition, the value of social media is personal relationship, not information. Ads that are relevant to the editorial are more accepted (think cosmetics ads in Cosmo or shotgun ads in Field & Stream. What kind of ad is relevant to insert between two people building a personal rapport?
3. Marketers are likely to push the model the wrong way. In marketers' embryonic understanding of the social media ethos, they will ask -- and push for -- what they know: guaranteed placements and impressions/GRPs or some other measure or audience size. Banner ads everywhere....lists of members they can ping to invite to friend their brand profile. Facebook is facing a mini-rebellion from their members with a 50,000-strong group called "Petition: Facebook, stop invading my privacy." (As an aside I was invited to join this group -- by a friend who is a senior marketer at a CPG company!)

To me this is reminiscent of the pop-up ad phase of online advertising: advertisers wanted more intrusive units than 468x60 banners, sites obliged them, felt huge backlash from their audience, and dialed down, or even eliminated pop-ups altogether. Kudos to Facebook for listening to their users and rapidly amending policies that meet resistance, as they have done with the Beacon Opt-out policy.

But social networks have a better alternative than retreat: educate marketers on the right way to become part of the social media environment. The panel I did at AdTech this month had great case studies from Coke, Digitas (representing Delta), MySpace and YouTube that begin to provide models other advertisers can follow to be successful.

And, thanks to MySpace, Isobar, and Carat, there is great research that has defined the "Momentum Effect" as the ROI driver in social media. This is a MUST READ report for marketers entering this space (get it here) (Disclosure/mini-plug: my colleagues at TNS were one of three partners is executing the research, along with TRU and Marketing Evolution).

Will social networks have the backbone to turn down revenue is marketers demand types of placements that will alienat users? Will marketers learn to give up control and learn to become the kind of friend that social network users will welcome?

This will be the real story of 2008, not Bubble 2.0.