Facebook: a new social media ad model

Following on from Rob's post on the growth of Internet advertising, a lot of people have been noting how ad spend online is still wildly disproportionate to the amount of people surfing the net and spending time online.

One area this is particularly true is social networking, where sites like MySpace and Bebo are drawing in huge crowds but not the ad dollars to match it (although this is growing I hear).

Now one of their newer competitors, Facebook, is getting ready to initiate a new spin on how to promote brands and products on social networks: sell pages to partners like Amazon and Apple and Ebay (I guess...), where they can create portals to sell their wares, and then make it possible for Facebook members to embed into their pages links/portals/widgets to links to these. According to this article Facebook won't be taking a cut from the sales so presumably they will be charging a pretty penny for the privilege of accessing Facebook users (anonymously of course).

(I'm still waiting for a reply from Facebook about all this directly. Will post it here when/if I get it.)

From what I understand this isn't being done by the other sites yet but if the premium on these sites is their dedicated eyeball count, then this could be a good way of capitalising on it.

And it positions a social network like Facebook in a new position as a portal of sorts, like Google or Yahoo but more recommended.

Last week's Week in Review

This story was originally posted last Friday on TCM's web site

It's been a curious week for results reports. All looks very good on the surface, but not so great deeper down. Google said that for the fourth quarter, its net profit nearly tripled over the quarter last year to $1.03 billion from $372.2 million. But nevertheless its shares were sent down on the news and are still trading down two days later.

What gives? There were different reasons floating around explaining why: some believed the market's response was because people have become inured to the Google good-news wagon, and what they really need to see is wildly excellent news to be enthusiastically buying up the stock, which is already trading at sky high prices of just under $500/share.

Others in the investment community say they are getting concerned with Google's business model being too focussed on a single revenue stream. The reality of breaking into all the new markets that they'd like to tackle to grow their business - online video (with YouTube), online payments (using Checkout), and putting their advertising model onto other media like newspapers - could be more costly than originally expected.

The online shopping giant, Amazon, provides an instructive example for Google about what this can mean to the bottom line in the longer run. Amazon had beat analysts' expectations for the fourth quarter on sales of $4 billion, an increase of 34% on the year before. But while still profitable, with sales of $98 million, this number was down significantly on sales of $199 million for the quarter a year ago, and is its lowest profit margin since 1999. This rather huge drop has been attributed to shrinking margins: its traditional businesses of selling books, movies and other items online has matured, and it's been spending a lot of money trying to shift products in new areas, like toys and electronics.

The lesson here might be that Google needs to get some value creation in those new areas before the old, established ones start to really fade.

Comcast, the US cable operator, is another company that's reported a tripling of profits for the quarter. With a lot of their growth coming from a welcome triple-play boost of customer spend, Comcast is going to reinvest a chunk of their money on expanding their telephone services. Their new attention could not be coming at a better time: they were also in Washington this week filing an appeal with the FCC over a recent set-top box ruling that will force them to 'open' their STB's to competitors' services. With the huge influx of new companies out there offering video on demand and other TV-based entertainment, this could seriously disrupt Comcast's (and other pay-TV providers') bread and butter.

Over in the UK, the satellite broadcaster owned by News Corp., BSkyB, also reported some healthy numbers on the back of triple play excitement. We'll be providing a full analysis of what they are doing in our launch issue of TCM magazine, which will be out in a couple of weeks.

Yo space or Myne?
Emap is the latest media company to try to follow the News Corp. example of getting into social media by acquiring an existing user-generated content player. Today it announced it bought Yospace Technologies, for £8.7m, with a possible further £5.7m in deferred payments based on their performance between now and March 2010. Yospace is behind a number of social-networking sites like "See me TV," a video sharing site designed for mobile operator 3 (which happens to have a content deal with Emap…). Three has claimed that it has had huge success with its video service, thanks largely to See me TV.

The price that Emap's paying for Yospace is a tad less than the $580 million that News Corp. forked out for MySpace. Yospace made a loss of £480,000 in 2005 (no figures for '06 have been released), and it's not yet clear that MySpace is turning a profit, either. No matter how much you pay for social networking, it's still not clear whether it will pay back.

The week in review

originally posted last friday on www.totalcontentandmedia.com....

It’s a testament to the current market dominance of Google that every day seems to bring a new story about the company. This week the news flow included items on Google ads in video games, on billboards and music videos; Google partnering with the BBC; Google accidentally releasing user data; and Google on top in searches, again (it will report its figures on the 31st so next week is bound to contain more stories).

But more interesting, I thought, was the news coming out about its competitor-in-chief, Yahoo.

After a burst of dealmaking at CES earlier this month, things have taken a dimmer turn. The week didn’t start off too well, when on Monday a story emerged that Didier Lombard, the CEO of France Telecom, said that the operator was considering ending its Yahoo contract and potentially trying to develop services themselves. France Tel is one of Yahoo’s biggest customers in Europe and uses Yahoo advertising products on its Web portals. Even if we don't know the actual terms of their agreement, it's high profile enough to be a problem for Yahoo, which is trying to win lots of new customers in the telco space.

Things didn’t get any better when Yahoo reported that net profit was down 61% on 2005—largely because of one-off investment gains last year—and revenue rose a mere 13%, to $1.7bn from $1.07bn in the fourth quarter last year. To compare, online business competitor Ebay reported net income growth of 24% on the back of similar revenues of $1.72bn. To further Yahoo’s regional woe in Europe, the MD for the area said growth in the UK market, one of its biggest worldwide, is likely to stagnate. Suddenly that exclamation mark they use starts to look especially out of place, doesn’t it? Yahoo!

Yahoo tried to make up for any further grumblings, about its new ad system or anything else, by announcing that it would actually be coming on line earlier than originally promised.

The silver lining to all this seems to be that Yahoo’s joint venture in Japan with Softbank is still coming up strong, reporting a 20% rise in profits over the same period last year. There, a big appetite for online shopping seems to be offsetting stagnating growth in search advertising.

Japan made some other notable appearances this week. The European Commission released its latest report on the digital economy. Online revenues in the region will grow to E8.3 billion by 2010, it forecast, but Europe will still lag behind the US and Japan, where people have proven to be tech crazy. Plus, the connectivity that people are getting both for at-home Internet and on-the-go wireless massively outpaces developments in Europe.

As a juggernaut, however, nothing can compare to China. This week, the country’s ministry of information industry said that Internet users grew 23% to 137 million. In a country with a population of more than 1.3 billion, the potential is still largely untapped.

Back in Japan again to note that Nintendo, the games company, has reported that it’s reached its full-year profit targets in nine months, underscoring how aiming modestly can sometimes pull off magnificent results, particularly compared to its rivals in the games area, Sony and Microsoft. While the Wii was largely written about as a simpler, cheaper new games console compared to its competitors, Nintendo clearly wants to bring its own stamp onto the idea of convergence, launching a news service that can be accessed through an graphic map, a Wii player, a broadband connection and an Opera browser.

On the subject of Nintendo's game's competitors, Microsoft had some bad news this week: a drop of operating profit (tho still profitable!). In the area of new products, AT&T pointed its finger at the software behemoth for ongoing glitches in its IPTV services.

Endemol sell-off buzz continued to be pushed out this week, with rumours that Disney is interested in bidding for the company in the same consortium that includes the company’s founder John de Mol. Such a buy would secure Disney a major producer of reality TV and game shows, which have so captivated audiences around the world (and cost relatively little to put together, and definitely less per episode than an instalment of Lost).

No one has brought up whether Disney would come up against any shareholder problems stemming from how some of the Endemol shows’ content might conflict with its corporate image of offering family entertainment.

News Corp. is another big media player rumoured to be interested in taking a stake of Endemol, but the company has denied interest. One other M&A play the company hasn’t ruled out, though, is throwing its hat into the ring for the Tribune Group in the United States. According to reports, News Corp. would buy almost only for the purpose of consolidating operations between Newsday and the New York Post, two Big Apple dailies that are not keeping analysts happy with their numbers. I wonder if they might also be a little interested in some of their television stations and maybe a sports team or two?

Indeed, the connection between how sport can be used to drive media domination is one that Murdoch has played to perfection in other markets, namely the UK and Asia. Now in the latter market, sport is being used again to try to grow a business—this time around it’s HDTV. It looks like it will be a challenging game, though: so many people get their content through free pirated signals that some think it will be hard to get companies to ramp up investment in costly HD services that have little chance of being sold.