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Why Advertising Is Bad For Social Media

  |  September 22, 2011   |  Comments   |  

Current ad models for social networks do not deliver optimal value for users, brands, and platforms. Consider these alternatives.

I write this as an open challenge to two of the biggest social media platforms out there. Facebook and Twitter, I hope you can change your ways. And yes, I realise you're valuated at billions of dollars so this may sound a bit bold.

When I talk to clients about the value of social media, the discussion is rarely confined to advertising. In fact, the value of social media spans many different facets of the average business operation. The most successful case studies to date have proven that social media can improve customer service, increase loyalty, attract new customers, gather consumer insights, and stimulate innovation.

Yet, the revenue streams are so far detached from these actions.

Contrary to how businesses are successfully using social media, the biggest social media platforms continue to rely on advertising as their key source of revenue. Advertising dollars keep the servers running and pay the office rent. It's a business model that investors and new entrants understand. It has always been the lifeblood of media companies, so why change now?

Well, social media sites are not like old media companies. They have the power to be different and help businesses far beyond advertising. But it has to start with the way they make money outside of advertising, or the rest won't change.

Let's consider a few different business models that could create sustainable revenue futures for these social media giants:

The Phone and Internet Model While newspapers pay their journalists and TV networks pay their show producers, social media sites pay their users nothing and reap all the rewards from advertising on our content. Is it really fair to be making advertising revenues on something you didn't pay for? If I sold advertising space on my neighbour's front door would he be happy about it? I doubt it.

Fair or unfair, we can admit they have created wonderfully addictive platforms for all of us to communicate with our friends. In a way, exploiting our content and subjecting us to advertising is the price of admission that we never had to pay out of pocket in cash. But are we beyond that point now?

In the same way that telephone and Internet providers are not free, social media giants like Facebook and Twitter don't have to be either. Would 750 million users pay $1 per year to keep their accounts? Would brands with 20 million fans pay even more? We're closer to a user subscription model than we think, even if it comes in the form of Facebook Credits (or the yet to be created "Twollars").

The Cable TV Model Once upon a time, TV was also a break-through media format like social media is today. We all enjoyed it for free as we were bombarded by ads that subsidised our viewing experience. But eventually, this model evolved as well. The standard viewing experience wasn't good enough. Premium channels, like HBO, came along to bring us higher quality content without the invasive advertising.

Consumers showed a willingness to spend money for less advertising and better quality content. While this by no means killed advertising business for television networks, it stabilised the entire TV experience into a marketplace that was balanced and competitive.

Could this same model of premium and exclusive content work as a revenue stream for Facebook and Twitter? Will consumers be willing to pay for an ads-free usage model?

The Google AdWords Model The AdWords advertising model always made a lot of sense to me. It keeps the content creators on their toes because the ad placements are based on both price and performance. Granted, it's still an advertising model, but the concept can be applied in a different way.

Sustainability boils down to stimulating the community to produce great content. For the same reason that HBO is able to charge a fee for its quality programmes, all members of the Facebook and Twitter communities need incentive to create great content. That's what will keep these platforms alive and that's what will keep the money flowing through the system.

The hybrid AdWords model that I'm suggesting rewards the brands that invest their would-be ad dollars into stronger content programmes that live inside the platforms. Active user engagement earns value-added ad placements that can't be bought elsewhere. For the brands, the value exchange is a cost-per-fan fee that includes analytics of their active customer community. For the platforms, the revenue streams are recurring fees for customer relationships the brands can't live without. And most importantly for the end-users, the experience is improved with better content and less intrusive advertising.

The current advertising models in place do not deliver this same equal value for the users, brands, and platforms. The short-term revenues do not align with the long-term picture of success.

Let's see who is bold enough to make the change.

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Brandon Cheung

As regional digital strategy director at Tribal DDB Asia Pacific, Brandon is an integral part of the development and execution of Radar, Tribal DDB's regional social media offering. He also provides digital leadership for the agency's clients. Brandon was previously (group) strategic planning director at Isobar and Carat Hong Kong, where he led digital and social media development for a range of clients, such as Chivas Regal, Swire Properties, Tiffany & Co., Nokia, and Adidas. He also developed Astro, a proprietary social media customer relationship management (CRM) system. Brandon has eight years of experience in digital marketing strategy, having worked in San Francisco, Los Angeles, and Hong Kong. He loves the Internet and thinks we don't say it enough. Show him some love on Twitter: @brcheung.

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