ADTELLIGENCE_ White Paper_Monetization of Social Networks_Chapter1


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ADTELLIGENCE_ White Paper_Monetization of Social Networks_Chapter1

  1. 1. ADTELLIGENCE GmbH Mannheim, Germany “Cashing in” on Connections – Monetizing Today’s Social Networks White Paper (2009) Chapter 1 – Introduction
  2. 2. Authors Michael Altendorf Thomas Mehls Dipl.-Volkswirt, Dipl.-Kaufmann, Managing Director Consultant and Member of the Advisory Board ADTELLIGENCE GmbH the future of advertising ADTELLIGENCEGmbH the future of advertising Phone: +49 (0)621/87204066 Fax: +49 (0)621/87204068 Connect! 2
  3. 3. ADTELLIGENCE Company Profile Founded in May 2009, ADTELLIGENCE GmbH is an innovative German start- up business, located in the Rhein-Neckar valley about 30 miles south of Frankfurt. The company strives to… …offer today’s Social Networks and other Web2.0-related Web sites with an on-demand / SaaS targeting engine for precise modulation of online advertising campaigns …provide a thorough analysis of anonymized user data in Social Networks, communities, e-commerce, and gaming platforms …respect the privacy rules of all Internet users and groups …offer the “next generation” of marketing intelligence, social media monitoring and web analytics …enable real-time targeting and the possibility for any brand name to freely define and directly reach their individual target groups …minimize wastage with the modulation of online advertising and maximize the effectiveness of advertising campaigns 3
  4. 4. Executive Summary Within the past two years, the amount of Social Networks and online communities has grown faster than anything else on the Internet. The number of people associated with these networks continues to dominate the Internet space. Unfortunately, almost all Social Networks today endure very high costs with very low monetization rates. Monetization occurs either directly through monthly subscribers, “Freemium,” and virtual- goods models; or indirectly though advertising based business models and first attempts to include e-commerce. Only vendors in Asia and some western platforms have started to implement a virtual economy with goods and currency. Most Social Networks today are unsuccessful in their advertising strategy because they target an enormously large mass of heterogeneous users. First-generation targeting models (including semantic, contextual, or behavioral targeting) do not help because these models are not tailored to the needs of Social networks. Social Profile Targeting on the other hand, leverages the demographic and geographic user information as well as the interests of the user. It is built around the information within user profiles such as their connections to other users and the data entered by the users themselves, to provide more exact data with which to reach target audiences. ADTELLIGENCE offers exactly this kind of targeting technology, which provides an interface between individual user profiles and classic target-group descriptions. Through a simple user interface based on the newest Web 2.0 technology, advertisers can easily define their target audiences/groups and get reports on the success of their campaign and target delineation in real time. ADTELLIGENCE’s targeting technology not only helps increase advertising revenue for Social Networks, but can also implement other effective revenue channels such as ecommerce, gaming monetization, marketing intelligence, social media monitoring and web analytics. There is no universal business model for Social Networks. Nevertheless, the best business model will always be a mix of different approaches that can be continuously developed and combined. The users will decide which model they like. Ask them, they will tell you what they want: to have user generated content delivered. 4
  5. 5. Contents 1. Introduction p. 7 2. The Global Market of Social Networks p. 12 3. Business Models for the Internet of the Future p. 44 4. Targeting Technologies for Social Networks p. 81 5. Future Strategies for Social Networks p. 129 6. Summary and Conclusions p. 144 5
  6. 6. Table of Contents 2.0 Tag Clouds 6
  7. 7. Contents 1. Introduction 7
  8. 8. Understanding the terms For the purpose of this white paper the terms ‘Social Networks’ and ‘community’ shall be conveyed as synonymous concepts. Social networks and today’s community websites are almost always characterized by identical, yet essential features:  Users can present themselves on their own personal “profile page”  Users can directly connect with one another by becoming “friends”  Users can communicate with each other through internal messaging systems and/or messaging services (e.g. instant messaging) The term “social networking services” has established itself as the standard Anglo- Saxon definition for these Internet services, but in the mainstream English language, the term “Social Networks” is more commonly used. Social networks are just one of the many manifestations of ‘Web 2.0’. This is the vast online world of increasing user-generated content such as images, text, and video, where users continue to interact and communicate with each other on a daily basis. 8
  9. 9. Social Networks How will they cash in ?  In just a matter of years, Social Networks have become ranked at the top of Internet user statistics. About half of the top ten most visited Web sites (based on page Strong impressions) are Social Networks in most of the countries in America and Europe User Growth  “Traditional websites" are now building more community-oriented features into their sites to increase traffic, user growth, usage, and page impressions  Combined with rapid growth and billions of page views, Social Networks continue to increase costs  These companies continue to add resources by maintaining networks and building Increasing out IT infrastructure; all for the care of their end-users. This leads to an extravagant Costs amount of unplanned costs  Most Social Networks, especially ones with enormous user bases, haven’t yet been successful in monetizing these masses  Only in specialized areas are subscription models successful  As the single source of revenue for most networks, the current ad model is insufficient, Marginal resulting in high scattering losses and putting even more pressure on CPMs Revenue  Today the debate within large Social Networks continues; the fundamental question of "Growth vs. Monetization” 9
  10. 10. Social Networks Monetizing the value for the Future  The success of Social Networks is not based on traditional editorial content, but the Success of essential communication elements between its users: personal news, photos, and communication and other user-generated content user profiles  Through increased communication and social pressure to “get involved,” users have created detailed profiles about themselves  Unlike traditional and professional editorial content, content from Social Networks has never been geared towards advertisers/marketers, even though Difficulty to identify the reach of social media is potentially huge. target groups  In years past, specific target audiences within Social Networks were difficult to directly identify, leading to marginal advertising revenues  The core of this white paper deals with the future monetization of these special web pages - and takes the perspective of the business behind the social network Future Monetization  It aims to answer the questions: How can a “product” consisting essentially of user profiles, personal messages and photos, sell? And: Is it growth OR monetization, or is it perhaps a combination of both? 10
  11. 11. How to Optimize Marketing for Social Networks Social Networks Today Business Models Today Targeting Technologies  Overview of German  Overview of current  Optimization of marketing and international monetization approaches through “targeting” Social Networks and their successes  Presentation of targeting  Quantitative and  Identification of different technologies the first qualitative international approaches generation classification  Opportunities and risks of  Introduction to social & the approaches profile targeting Focus 11