Social Media Advertising Barriers Eroding

“Social media” still seem to be the words on everyone’s lips, particularly after the recent announcements by Google, Facebook, and MySpace describing their data portability solutions. The number of users is huge and growing; eMarketer predicts by 2011, user-generated content (UGC) sites will attract 101 million people in the U.S. Although eMarketer reduced its forecast for U.S. online social network ad spending, social media sites should be grabbing advertisers’ attention. Here’s why.

State of Social Media Advertising

When I examined social media advertising about nine months ago, advertisers had genuine concerns about it. Now, with new advertising solutions and proven success stories, the barriers to entry are coming down.

“Social media advertising is still in its infancy,” explains Seth Goldstein, president of SocialMedia Networks, a social advertising network. “CPMs are still very low while the audience volume is very high, resulting in a lot of inventory, and it’s going to take advertisers a lot of time to figure out how to monetize it. What most advertisers are doing now — traditional online display ads slapped over a social network — doesn’t work and users do a good job of ignoring these ads.”

Facebook’s own ad offering, Facebook Social Ads, tries to up the relevancy by pairing a “targeted ad with related actions from a user’s friends” and provides additional targeting based on a user’s self-completed profile information.

“I think social media will be experimental as long as it takes for the brands to understand exactly what it is,” expresses appssavvy CEO Chris Cunningham. “So a big part of what we do every day is educate, [including answering questions like,] what’s the difference between a widget and an application?”

As with many new media advertising platforms, advertiser education is crucial. Of course, the numbers alone talk, but advertisers still don’t know how to leverage the space and have deep concerns about protecting their brands. “I know that social media is gaining importance because many of the big-name advertisers and agencies now have or are advertising for a dedicated social media position within their organization,” says SocialMedia’s Goldstein. “The advertising community knows they need to do [social media], but they’re just not sure how yet.”

Companies like SocialMedia and appssavvy offer advertising solutions that tap into the growing number of applications developed specifically for social networking communities like Facebook and MySpace. These solutions take into account the medium in which they’re displayed, focusing on the kind of user engagement within the application, such as playing a game, ranking each other, taking a quiz, or creating a character, and developing ads that suit the interaction. For these ad solutions, the key lies in ad customization. Goldstein gives Facebook credit “because they’ve given viability to a whole community of applications developers” who can now make money from their finished product.

Lotame, another social media ad platform, on the other hand, uses standard ad units skewed more toward rich media ad creative. Lotame aggregates over 20 social networking communities and allows advertisers to custom-create user profiles to target. The profile can be based on demographics, user engagement, interests, or behavioral targeting.

And then there’s Media6Degrees, which ClickZ recently wrote about. It’s so under the radar that its own site doesn’t say much about what it does or how it works.

Measuring Social Media Ad Performance

Lotame founder and CEO Andrew Monfried emphasizes that advertisers can’t use the same metrics of times past to determine the success of social media campaigns. “Social media advertising is not about impressions and click-throughs,” says Monfried. “Instead, the advertiser needs to look at metrics like frequency, time spent in front of ad, and brand immersion. CTRs might be low, but the quality of conversion rates can be off the charts.”

Both Lotame and SocialMedia provide rich metrics, like size of audience, psychographic and demographic breakdowns, pathographics (the types of applications a user engages with), installations of applications, and ROI (define) calculations, all obtained in a very short time. These lessons alone might be worth the price of entry into the social media advertising space.

Universally, it seems that so far the entertainment industry leads the pack of advertisers successfully leveraging the social media space, followed by consumer-packaged good companies. Because of the high conversions, social media also attracts direct response advertisers in verticals like travel, e-commerce, pharmaceuticals, and financial services, but Lotame’s Monfried doesn’t believe that social media works well enough for B2B (define) to push it.

In the race to capture shifting ad dollars, I think social media advertising is a good bet.

Hollis is off this week. Today’s column ran earlier on ClickZ.