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ADTELLIGENCE White Paper: Monetizationof strategies and business models for Social Networks

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Within the past two years, the amount of social networks and online communities have grown faster than anything else on the Internet and the number of people associated with those networks continue to ...

Within the past two years, the amount of social networks and online communities have grown faster than anything else on the Internet and the number of people associated with those networks continue to dominate the Internet space. Unfortunately, almost all social networks today continue to endure very high costs with very low monetization rates. Monetization occurs directly (through monthly subscribers, “Freemium”, or virtual-goods models) or indirectly. Mainly through advertising based business models and first attempts to include e-commerce. Only vendors in Asia and some western platforms started to implement a virtual economy with goods and currency.
Most Social networks are today 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) don’t help either because these models are not tailored to the needs of social networks.
Social Profile Targeting leveraging the (demographic, interests and geographic user information), on the other hand, is built around the information within user profiles, users’ connections to other users, and the data entered by users themselves – to provide more exact data 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 newest Web 2.0 technology, advertisers can easily define their target audiences / groups and in real-time, get reports on the success of their campaign and target delineation. ADTELLIGENCE’s targeting technology not only helps increase advertising revenue for social networks, but can also be used to implement other effective revenue channels like ecommerce, gaming monetization or marketing intelligence, social media monitoring and web analytics.
There is not just one perfect, “universal” business model for social networks, but nevertheless, the best business model will always be a mix of different approaches that can continuously be developed and combined. The users will decided which model they like. Ask them, they will tell you what they want, to deliver user generated content

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ADTELLIGENCE White Paper: Monetizationof strategies and business models for Social Networks ADTELLIGENCE White Paper: Monetizationof strategies and business models for Social Networks Presentation Transcript

  • White Paper
    “Cashing in” on Connections –
    Monetizing Today’s Social Networks
    ADTELLIGENCE GmbH
    Mannheim, Germany
    www.adtelligence.de
    michaelaltendorf@adtelligence.de
  • www.adtelligence.de
    2
    Authors
    17-May-10
    Michael Altendorf
    Dipl.-Volkswirt,
    Managing Director
    ADTELLIGENCE GmbHthe future of advertising
    michaelaltendorf@adtelligence.dePhone: +49 (0)621/87204066
    Fax: +49 (0)621/87204068
    Connect!
    www.xing.com/profile/Michael_Altendorf
    www.linkedin.com/in/michaelaltendorf
    www.twitter.com/Michael1980
    Thomas Mehls
    Dipl.-Kaufmann,
    Consultant and
    Member of the Advisory BoardADTELLIGENCEGmbH the future of advertising
    thomasmehls@yahoo.com
  • www.adtelligence.de
    3
    ADTELLIGENCECompany Profile
    17-May-10
    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
  • www.adtelligence.de
    4
    Executive Summary
    17-May-10
    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.
  • www.adtelligence.de
    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
    17-May-10
  • www.adtelligence.de
    6
    Table of Contents 2.0
    17-May-10
    Tag Clouds
  • www.adtelligence.de
    7
    17-May-10
    Contents
    1. Introduction
  • www.adtelligence.de
    8
    17-May-10
    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.
  • www.adtelligence.de
    9
    Social Networks How will they cash in ?
    17-May-10
    • 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 impressions) are Social Networks in most of the countries in America and Europe
    • “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 out IT infrastructure; all for the care of their end-users. This leads to an extravagant 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, resulting in high scattering losses and putting even more pressure on CPMs
    • Today the debate within large Social Networks continues; the fundamental question of "Growth vs. Monetization”
    StrongUser Growth
    Increasing
    Costs
    MarginalRevenue
  • www.adtelligence.de
    10
    Social Networks Monetizing the value for the Future
    17-May-10
    • The success of Social Networks is not based on traditional editorial content, but the essential communication elements between its users: personal news, photos, and other user-generated content
    • 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 the reach of social media is potentially huge.
    • 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
    • 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?
    Success of communication and user profiles
    Difficulty to identify target groups
    Future Monetization
  • www.adtelligence.de
    11
    How to Optimize Marketing for Social Networks
    17-May-10
    Business Models Today
    Social Networks Today
    Business Models Today
    Targeting Technologies
    • Optimization of marketing through “targeting”
    • Presentation of targeting technologies the first generation
    • Introduction to social & profile targeting
    • Overview of current monetization approaches and their successes
    • Identification of different international approaches
    • Opportunities and risks of the approaches
    • Overview of German and international Social Networks
    • Quantitative and qualitative classification
    Focus
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    12
    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
  • www.adtelligence.de
    13
    The History: Social Networks go from Niche to Mass Phenomenon
    17-May-10
    The term ‘social network’ was picked up by the media just a few years ago.
    The basic functions of any network, communication and interaction between two or more people, are not new technologies. They’ve been around since the beginning of the Internet.
    Chats, email, forums, and some specialized communities also have a long history, but were always very decentralized.
    Centralized systems, such as the “news groups” (i.e. Usenet) existed mainly in the IT sector and have played a special role in the open source movement since the early 90s.
    “Social networks” as central platforms where people could create user profiles mostly existed among online gaming communities, dating services, or information services and have been around since the turn of the century
    Since 2006, there has been a mass adoption of large Social Networks in Europe, since the advent of platforms such as StudiVZ, Netlog, Bebo, MySpace and Facebook
    Front Cover of COMPUTER magazine, September 1979
  • www.adtelligence.de
    14
    17-May-10
    The Drivers: Social Networks Go from Niche to Mass Phenomenon
    • The spread of broadband access at home and Wi-Fi Internet access in public areas has led to a mass distribution of long-lasting and cost-effective Internet
    • Lack of broadband connections in the 90s prevented the breakthrough of many innovative Web technologies
    • In recent years, mobile Internet access has finally caught on in the private sector. This, after years of acceptance in the business sector, is finally giving way to the introduction of useful mobile applications and hardware
    • The mobile Internet is gradually replacing the asynchronous communication via e-mail through a permanent, active interaction between the real and virtual world. The “life” within Social Networks is slowly being merged with what’s happening in reality (1:n communication instead of 1:1)
    • Photo uploads to Facebook and Twitter and mobile “status-updates” are very ‘en vogue’ among young people and continue to become standard communication tools
    • Many Social Networks have opened their doors to external developers to increase the speed of innovation and connectivity. Some networks have bound together and have chosen an ‘open source’ standard for these developers, allowing them to “write once, install many”
    • Various open source Internet services and social networking sites have made it possible for end-users to keep one login scheme, which allows them to access multiple sites with one user profile or login (e.g. Open ID). This has cleared a very big hurdle for new Social Networks that seek new traffic and users .
    Broadband InternetAccess
    Mobile Internet
    Open SourceInterfaces
  • www.adtelligence.de
    15
    Social Networks Transforming our Communication
    17-May-10
    News from my Network – What are all myfriends up to...right now!?
    Chat with your network of newfriends
    Find new friends with similar interests
    Send Messages instead of sending Email
    Walls, blogs, videos, combined with editorial content
    Self-portrayal
  • www.adtelligence.de
    16
    17-May-10
    Social NetworksConnecting our “Virtual” Lives with Reality
    „What ever happened to John Doe and Lieschen Müller after University?“ (Facebook, MeinVZ, stayfriends)
    „What event should I go to – and who’s going to be there?“ (Netlog, MySpace)
    „Who’s the good looking blonde girl in our Latin class?“ (StudiVZ)
    „What the heck is my neighbor up to?“ (Wer kennt Wen)
    „What music, fashion, etc. is in right now? Am I cooler, or are you? (MySpace)
    „What do you do, who do you know, and are you an important connection for me to have? (Linkedin, XING)
    The Success of Social Networks
    Social networks do differ from one another to some extent
    In particular, it is certain features, functions, and aesthetics that make up the attractiveness of individual social network
    Basic social networking features have existed on most platforms for a long time now. More modern networks have had massive growth breakthroughs because of good strategic planning of users and how they used the network effect. (i.e target users in regional areas, or certain ages groups, special interest groups)
    In addition, they have cleverly defined the local dominance in target groups. (For example, x% of a students’ friends belong to network XY, through the natural network effect, he will be encouraged to join them)
    Virtual communication and interaction is common among all Social Networks: chat, messaging, and related functions
  • www.adtelligence.de
    17
    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
  • www.adtelligence.de
    18
    Social Networks What it all means on the Global Scale
    17-May-10
    Top Global Websites (Traffic)
    Six of the top 15 Websites in the world are Social Networks1)
    The high rate of growth for Internet usage in the past few months has been due to social network activity
    The top-ranked sites are continuously changing between Google, Yahoo, Facebook, and other major players Other top sites outside of “pure search engines” have incorporated more and more elements of classical Social Networks (Blogger, Twitter, YouTube, etc.)
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    1) The distinction between "traditional" Social Networks like Facebook and the user-generated content side of Web 2.0 (eg. Blogger.com. Twitter) is extremely difficult. Therefore, we’ll keep the US-tradition (see, eg. TechCrunch) of the broad definition.
    15
  • www.adtelligence.de
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    17-May-10
    Social Networks In Germany, there is even more to the Story
    Top Websites in Germany (Traffic)
    Ranked in order of page impressions, more than half of the top 15 sites in Germany are Social Networks! In Germany, neither Google nor Facebook has been audited / approved by the IVW (Informationsgemeinschaft zur Feststellung der Verbreitung von Werbeträgern e.V.). Still, the dominace of social network in Germany is even more than that of theinternationalrealm
    Even in Germany, Social Networks grow with the same dynamic and faster than their competitors – similarly to the rest of the world
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    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
  • www.adtelligence.de
    21
    U.S. & Chinese Sites dominate the Market for Social Networks
    17-May-10
    Trying to get hold of reliable statistics on the world's largest Social Networks is a task in itself. There is a huge lack of statistical comparisons and publications available, making it practically impossible to compare
    In addition, the difficulty is that the establishment of Social Networks has become much more complex since many websites incorporate community features
    The most relevant statistics can be found within blogs (Blogger, WordPress), and sites like Flickr, Yahoo!, and Geocities, which also include user-generated content. Statistical experts such as TechCrunch and Comscore have found analogous results.
    Strikingly, the global market is dominated by U.S. and Chinese pages (QQ, 56.com, Baidu Space)
    Social Networks, Global Ranking (ranked by unique visitors)
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    Facebook & MySpace Maybe the best in the World, but not locally
    17-May-10
    Source: http://www.vincos.it/world-map-of-social-networks/
    • Despite the widespread use of Facebook and MySpace, they do not dominate every local market. Although, they both have the number 1 position for most countries in the western English-speaking world
    • Data for this chart was simply collected from Alexa.com und Google Trends, therefore this survey does not attempt to fully prove the accuracy of today’s known rankings
  • www.adtelligence.de
    23
    Facebook Number 1 among English speaking Countries
    17-May-10
    Source: http://www.oxyweb.co.uk/blog/socialnetworkmapoftheworld.php
  • Registered User Accounts worldwide
    Tencent // QQ
    >870 Mio.
    Source: iBusiness
    Facebook
    > 300 Mio.
    MySpace
    > 200 Mio.
    Twitter
    >80 Mio.
    VZ Gruppe
    ca. 15 Mio.
    Xing
    > 8 Mio.
    WKW
    6,3 Mio.
    Lokalisten
    1,9 Mio.
  • www.adtelligence.de
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    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
  • www.adtelligence.de
    26
    Facebook and Student Directory Networks dominate in Germany
    17-May-10
    In Germany, “student directories” (VZs) are mainly targeted to the students of German elementary schools, high schools, and universities. They continue to lead in the social networking space throughout the country and look like a Facebook copy cat but in red
    Facebook ranks at the top position as a stand-alone network in Germany, but its growth is accredited to its international momentum and its popularity as the major U.S. networking site
    With overall retention rates dropping off in Germany, Facebook is still ahead, but has decreasing retention trends
  • www.adtelligence.de
    27
    Emerging Top Social Networks in Germany
    17-May-10
    Source: IVW, AGOF , Blogs & operator pages, own analysis
  • www.adtelligence.de
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    Strong Aesthetic Differences of German Social Networks
    17-May-10
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    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
  • www.adtelligence.de
    30
    Independent Social Networks in Asia on the Rise due to vast Cultural Differences
    17-May-10
    • Many Asian cultures use Social Networks as their “virtual escape” to break out from their often conformist lives
    • Social Networks from Asia usually offer much more space on users’ profile pages for display, decoration, and self promotion
    • Anglo-Saxon players like Facebook have failed to fully meet the needs of users in Asia due to language and character barriers
    • Success of the large Social Networks in Asia can be similarly compared to that of dominance players like Facebook in the USA
    China
    Japan
    South Korea
  • www.adtelligence.de
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    Some Screenshots
    17-May-10
    Source: plus8star
  • www.adtelligence.de
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    QQ – China‘s money machine reaching 1 billion revenues in 2009
    17-May-10
    Source: plus8star, Tencent annual report
  • www.adtelligence.de
    33
    Asia as Example? Yes, but think about cultural differences
    17-May-10
    QQ (Tencent) as Model of Success
    Monetization in Asia
    • Tencent began as an instant messenger service and today, although it is not a typical Social Network, it offers several products like gaming, portal, virtual currency and many more. All offers are combined with typical social network features like user generated content, multimedia and communication features
    • QQ is Chinas biggest community, but also the world leader in number of users and revenue
    • The business model started with free instant messaging services and up sells premium features, games and virtual goods. 90% of the revenues are created through premium services. Advertising is only 10% of the revenues
    • Success factors are the big network effects & the massive feature offering
    • Creating individual profile pages is one of the main features of Asian Social Networks.
    • This creates a big opportunity to not only sell real goods, but virtual goods (see also in chapter 3) like skins, avatars etc for the users cartoon alter ego. This is comparable to a mixture of the Sims and Second Life or Habbo hotel
    • Virtual commerce is often combined with the generally known revenue models like advertisement
    • The Asian leaders often have a monopoly in their country. E.g. Cyworld has about 90% market share in south Korea and Mixi locks the market of people in their twentys in Japan
  • 34
    www.ADTELLIGENCE.de
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    Asian Social Networks top the Charts among World Players
    17-May-10
    Source: http://resources.emartin.net/blog/pic/China-SNS.jpg
  • www.adtelligence.de
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    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
  • www.adtelligence.de
    37
    Understanding the Content “Boundaries” of Social Networks
    17-May-10
    • Social networks possess very extreme dynamics, both in terms of user numbers and their orientation
    • Networks’ user alignment is usually due to the fact that Social Networks start in specific geographic locations. KWICK , for example, started as a regional social network in the Stuttgart (Germany) area and now has become a pan-regional social network, the same holds for Localisten.de and Wer-kennt-wen.de. (This is also true for vendors from other countries)
    • On the other hand, large Social Networks like Facebook or MySpace offer even the smallest communities a home merely through their large numbers
    • These smaller interest groups that focus on specific topics make it possible for users to exchange ideas with other like-minded users
    • In addition, “normal” websites that focus specifically on content, such as European Soccer (like kicker.de) are slowly evolving in the direction of social networking sites - incorporating features that better connect their community (forums, profile pages, personal messaging, etc.)
    Dynamic Development of a Network
    Specialized Communities and Interest Groups
    “Content Focused” Web Sites
  • www.adtelligence.de
    38
    Specialized Social NetworksTarget Audiences and Special Features and Functions
    17-May-10
    • Almost all Social Networks started in some form as a specialized network. Here are the main criteria of specialization:
    • Occupational: students (StudiVZ), business groups, (LinkedIn, Xing.) graphic designer (grafiker.de)
    • Age: e.g. MeinVZ, platinum grid, etc.
    • Geography: National, regional or even local networks - such as KWICK!, Nachbarn.de, etc.
    • Special interest: Music (e.g. simfy.de or last.fm), Auto (e.g. autoki), Old timer (e.g. Carsablanca), Mothers (e.g. NetMoms), etc.
    Target Groups
    • Other Social Networks have “special features” at the core of their community, attracting users who have specific needs
    • Noovo.com - Information Worker / Business Users - Users of Social Networks with similar interests that filter the information "collaborative filtering" and "crowd sourcing"
    • Ning.com - Marc Andressen's approach combines thousands of niche networks on one single platform, rather than creating one “general” social network
    • Aki-aki - Location-based Social Networks
    Features
  • www.adtelligence.de
    39
    Examples of Social Networks with Special Features and Interests
    17-May-10
    • Large and “successful” Social Networks find it a continual challenge to monetize even a fraction of their enormous user bases. As already stated in this paper, the lack of monetization lies in the inability to efficiently advertize and target large undefined audiences within their networks, which leads to low CPMs and the difficulties of proving an added-value or a unique selling point over competitive websites due to the homogenous nature of Social Networks
    • “Specializing” a Social Network is still no guarantee for success:
    • Specialized groups and Social Networks like StudiVZ face the same challenges as their large, general counterparts. Not all students are the same; they want customized news & ads
    • “Long-tail” Social Networks are indeed an interesting, definable user base to advertisers, but they lack convincing “user traffic” numbers that are needed to attract advertisers to run a solid, lucrative marketing campaign
    • Therefore some specialized Social Networks use alternative methods, such as subscription-based or “Freemium” models, and are successful
    The following chapters will go into detail about how Social Networks of different structures create revenue today and in the future
    www.adtelligence.de
    40
    Specialization alone does not guarantee Successful Monetization
    17-May-10
  • 41
    17-May-10
    Contents
    2. The Global Market of Social Networks
    2.1 Social networks – Part of Web 2.0
    2.2 Importance of Social Networks on the Net
    2.3 Largest Social Networks in the world
    2.4 Largest Social Networks in Germany
    2.5 Asia: A special scene in Social Networks
    2.6 Specialized Social Networks
    2.7 Summary
    www.adtelligence.de
  • www.adtelligence.de
    42
    Social Networks in Global Competition: Specialization, new Features Keys to Success
    17-May-10
    • Today, rapid penetration and a large number of Social Networks have already saturated the market in many countries
    • The result is “cut-throat” competition between established players and newer entrants which occurs globally.
    • The last few months have shown that users find newer, more innovative features enough of an incentive to switch platforms, despite the higher costs involved
    • Global players (particularly Facebook) heavily invest in the technical development of their platform with the hope that global market dominance is the key to rapid return on investment. Consequently, they have the ability to scale their development more quickly than others with development teams spread over several countries
    • Certain social network specializations (like special-interest groups or regional markets) can lead to successful business models
    • The question is, how far can they preserve the attractiveness of niche platforms for target audiences and to what extent will regional networks be able to withstand the pressure of global innovation?
    Global “Knock-Out” Competition
    Features Critical to Success
    Attractive Specialization
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    Global vs. LocalGeneral vs. Specialized
    17-May-10
    Facebook, MySpace
    LinkedIn
    Global/International
    Which will emerge as the dominant Social Networking Strategy?
    MeinVZ, QQ
    XING, carsablanca, StudiVZ
    • Today's Social Networks can be generally categorized as "global vs. local" and "general vs. specialized," despite some gross inaccuracies
    • Although local specialized Social Networks (such as XING and LinkedIn) show a positive cash flow today, reviews from Facebook and MySpace, which follow the global, general pattern continue to raise the eyebrows of investors
    • Only the future will tell if there is a dominant model of success in this game.
    Specialized
    General
    Local/Regional
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    17-May-10
    Contents
    3. BusinessModels for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Broadband Internet Access:Paving the Way to Market Successes
    17-May-10
    The spread of broadband Internet access has led to growing numbers of Internet users, more innovative ideas for Web applications, and increased capital investments into the market
    Technical Origins
    Broadband Internet
    Affordable, Attractive Uses of the Internet
    Web2.0
    • Improved bandwidth brought forth new features on more Web pages
    • There was a cycle of new ideas, including the "Web 2.0 revolution" and ultimately, a huge push for
    users to jump online
    • The Web 2.0 "hype" and high ratings of new ideas led to many second-round funding investments
    Innovative, Usable WebFeatures
    More Users
    MoreInnovation
    MoreFounders
    More Financing
  • Plenty of Funding, No Plans for Monetization
    Lack of pressure to monetize in the early stages of Web2.0
    Growth was the main focus for companies and their investors during this time
    Recession forces them to monetize earlier than planned
    47
    17-May-10
    www.adtelligence.de
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    Investors Relationships and Their “Network Effect”
    17-May-10
    For the investors of various Web 2.0. start-ups, the “network effect” and overall growth of the young social network’s user base was at the forefront of strategy. How to actually make money, on the other hand, wasn’t the focus of their equation at the time. Here is an example of the network effect from the sale of Friendfeed to Facebook. The VCs are often invested in many different companies which fit together only in a portfolio view.
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    The Economic Crisis and the Pressure to invest
    17-May-10
    • Within just weeks of the global economic crisis, there was an intense rethinking among investors in terms of business and investment strategy
    • The pressure on the venture capital firms grew dramatically due to high cash burn rates of their newly created businesses
    • Even for the well established businesses, the pressure was increased by the high levels of debt built up from their acquisitions
    • The start-ups of investors’ portfolios were brought under even greater pressure to find ways to monetize their business
    Economic and financial crisis of 2008/2009
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    Rapid User Growth in Social Networks Show First Signs of Market Saturation
    17-May-10
    Nearing Market Saturation?
    Increased Growth
    Two-thirds of all Internet users visit Social Networks todayIn Russia, Internet users spend an average of 6.5 hours logged in to Social NetworksAlready 75% of the German, Swiss, American, and Australian online population are members of at least one social networkMore than 80% of all students in the United States and Germany have a profile on at least one social network
    Since 2004, Social Networks showed dynamic growth among users. Facebook, founded in 2004, registered its one millionth member at that time and currently has more than 290 million members
    “Student directories” of Germany currently have more than 15 million membersSince 2008, growth leveled off in most countries. This was partly due to the beginning market saturation and partly to new, specialized competitors (see examples)
    Also in 2008, the first signs of Social Networks trying to win over users from other networks became visible
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    Pressure from Investors:“It’s go time…or else!”
    17-May-10
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Good Business Models include both Revenue and Expenditure Models, with an Emphasis on the Revenues!
    17-May-10
    “Business models are perhaps the most discussed and least understood aspect of the Web.
    There is so much talk about how the Web changes traditional business models.
    But there is little clear‐cut evidence of exactly what this means.”
    Professor Michael Rappa
    The real focus is here!
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    Distinguishing two Revenue Models: Direct and Indirect
    17-May-10
    Possible Revenue Models for Social Networks
    Direct
    Indirect
    User Pays for Usage:
    • Per time spent using service. (most frequent model, e.g. monthly fee)
    • Per feature/functions used (regularly or for one time usage)
    Third-parties (businesses) pay for access to services (exploiting the reach of the social network):
    • For the placement of advertisements
    • For the sales of third-party products
    • For the use of the network as a market research channel
    Subscription
    Freemium
    Virtual Goods
    Advertising
    E-Commerce
    Market Research
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Subscription Models: The Challenge of getting Users to pay
    17-May-10
    Subscription revenue models charge for usage of services on a reoccurring schedule (daily, monthly, yearly, etc.)The advantage is that revenues are calculated well in advance, and the services are pre-financed by customers (Similar to the print media business models) Subscription models are only successful if users see a direct added value – especially in comparison to a similar service that is available for free. For example, streaming music directly rather than downloading it to a shopping cart, checking out, having to wait, etc.
    One challenge that businesses face is to get users to overcome the “payment hurdle.”
    In most cases, there is a free trial period (examples: myYearbook, Napster), which allow the user to test the network for limited time
    Despite these hurdles for first time users, many companies use the “Freemium” business strategy (see next chapter) where basic site functionality is freely available, and extra “premium” features must be paid for
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Freemium Model Monthly Fees for Premium Features, Basic Versions for free
    17-May-10
    Freemium models combine free usage with premium features and functionality The term “premium” generally offers higher-quality services (more storage space, use of advanced archival or search functions, etc.). An excellent example of an Acquisitions
    Freemium model for specialized services can be found at www.myartspace.com
    For some services, the premium version is exactly the same in terms of performance, but
    is simply free of third-party advertising. (example: www.myyearbook.com) User fees for premium services are usually charged on a recurring basis, similar to the subscription model.
    The Freemium model has the advantages of predictability and pre-financing for the business, as already mentioned in the subscription model
    XING, a popular site for business networking in Europe, premium members have the advantage that they can see all users of the network and send messages to them (a powerful lead generation tool). Messaging is normally a standard function among social networks, but in the case of creating business contacts, it is a premium service.
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    Freemium ModelsAccepted only by Certain User Groups
    17-May-10
    When users make the decision whether a premium membership is worth it or not, features that help cut down time-to-information play a decisive role (quicker and easier search, less advertising, direct access, etc.). For this reason, the use of Freemium models in the business sector (where time equals money) is more widespread than with normal social networking sites that target students and young adults.
    It is clear from this example that a user’s willingness to pay for certain services are quite different. The “premium range” usually offers a package of functions and services that carry relevance to only a certain class of individuals (and higher pricing), and therefore may deter other users from purchasing those services.
    A solution to this dilemma could be the settlement of individual bids set up to be analogous with virtual goods, which are touched upon in the following chapter.
    Components of premium offers are subject to frequent changes in order to keep pace with future competition. For example, no one pays for access to e-mail today, but they do pay for mobile e-mail access - in the near future however, this may no longer be the case and new premium services will need to be developed in its place to continue to monetize the business.
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    Specialized Social Networks Freemium Services to Customers
    17-May-10
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Pay-As-You-GoAn alternative to Subscription and Freemium Models
    17-May-10
    The willingness of the users to pay for individual services/ content is often very differentStandard-premium packages sometimes don’t offer enough value (It’s either “all or nothing”)
    Every single user pays for the same features and functions
    Subscription Model
    Some users don’t pay, and only use the basic version
    Freemium Model
    Some users pay for the Premium version
    “Pay as you go” model: Offering individual products 'on demand' for the customer (virtual goods) and can make for a happy alternative for the business(operator)
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    Breakdown: “Pay as you go”- Model und Virtual Goods
    17-May-10
    “Pay as you go” Model and Virtual Goods
    Premium Services
    Individualize Profiles and Character
    Gaming Features
    • Virtual gifts, birthday greetings, greeting cards, etc.
    • Spam filters for profiles
    • Representation of the profile (skins, etc.)
    • Avatar features (e.g., clothing, etc.)
    • Personal song on the profile
    • Extra lives for game character
    • Wizard by World of Warcraft
    • Equipment and armament for war games
    • Game level expansion.
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    Virtual GoodsAlready established in today’s Social Networks
    17-May-10
    Virtual goods in Social Networks can be seen in many Social Networks today, especially in Asia. (In all type of social network models from value-added services, to pay-as-you-go models, etc.). The largest social network in China, QQ, has estimated revenues of approximately €100 million in 2009
    Facebook, which also sells virtual goods, is only in beta stage. Even still, current transactions of these goods approximate U.S. $75 million, quoted from a recent statement from Marc Andreesen in 2009. There aren’t classical premium features, rather little virtual gifts & items with a price of up to one US dollarThe best known example of virtual goods comes from the platform Second Life, which was originally created and used by professional developers and became extremely profitable. After a slew of year-long technical difficulties, the platform is up and running today and growing at a strong pace. It has to be admitted that gambling, etc. is big in Second Life and it was used to launder money by the mafiaEspecially in the games sector, where companies such as Vivendi / Blizzard or the German company Gameforge have created 3D worlds and hundreds of millions of virtual goods - mainly clothing and equipment for game’s characters (swords, armor, weapons, and wands). Commenting on their own success, Gameforge’s CEO adds:
    “Even in the virtual world, People want to look good!”
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    The Business of Virtual Goods: Second Life
    17-May-10
    In Q2 2009, $144 Mio of User2User transactions were made in Second Life. 750,000 new unique users join the network every month
    Source: Secondlife.com
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    Virtual GoodsAn Exciting Stream of Revenue for Social Networks
    17-May-10
    Advantages
    • Long-tail monetization isdefinitelypossible
    • Tests the users willingness to pay
    • To test features, free credits are offered
    • Increases the attention span of users in the network, and benefits from the effects of new advertising methods.
    • Increases the attractiveness for external content creators (labels, publishers, developers) who can earn money by developing items for the platform
    • Creates rewards / opportunities for user-generated virtual goods
    Put in perspective, virtual goods create an extraordinary revenue stream for operators of Social Networks.
    However, this model continues to pose some technical challenges for the operators.
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    “Pay As You Go” ModelsThe Business Accounting Challenge still remains!
    17-May-10
    Virtual goods typically require the introduction of a virtual currency
    • Internationally, it is a challenge to create such a system – in a huge virtual economy, like Second Life, users exchange currencies from around the world and need a fixed or more sophisticated free flow exchange rate
    • Changing costs for users to move from one platform to another is unclear for the user
    • High user acceptance rates are a must ("price tags" visible in US dollars)
    • Rewards for user-generated content can be easily distributed (E.g. Amazon reviews will be rewarded with cash / credits, etc.) Especially when the business opens this virtual world to external providers, a secure billing system must be accounted for (especially in small amounts / keywords: micro-payments). The business poses major challenges including tax implications that need to be resolved.
    Payments from individual users need to be accounted for:
    • Especially for young adults and teens without credit cards and/or bank accounts, this challenges legal barriers (“How do they use their pocket money for transactions?”)
    • Solutions need to be found to avoid the billing of small amounts or to enable cost-effective measure for smaller transactions.
    • Alternative models are also possible (example: Apple iTunes voucher cards at electronic stores, but these can be expensive and complicated)
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Lousy Pennies for Social Networks?
    17-May-10
    “You Get Lousy Pennies on the Web”
    Prof. Dr. Hubert Burda Owners of Hubert Burda Media at Digital Lifestyle Day 2009
    • This provocative statement is true and false at the same time, and not only for traditional content models.
    • Even in Social Networks, the situation is divided - as shown in this report’s previous examples from German “student directory” Social Networks vs. China’s QQ
    • The trend of advertising budgets is shifting to Internet advertising due to the rising numbers of social network users (and general Internet usage). Hence, only very few sites with technological advances are profitable from measurable campaign results, via Google.
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    Online CPMs Generally quite low, especially compared to the Cost for Content
    17-May-10
    With display ads and similar forms of online advertising, publishers earn very little per 1000 ad impressions (CPM) in comparisons to the costs of traditional business models - this is also true for Social Networks. This is especially true when one considers that only certain parts of the page are actively in demand from advertisers (tops of websites, for example). Even leading websites usually sell approx. one third of the advertising spaces in their network.
    In particular, sales-oriented campaigns are valued on their commission rates (as well as their performance) and on their overall reach and communication.Unfortunately, public Social Networks and other media sites don’t publish their net CPM figures, but experts in the field can confirm basic ad tendencies of low CPMs. Nevertheless, advertising on Social Networks is on the rise. According to a study by Comscore, currently 20% of all online advertising in the United States (in terms of ad impressions / page ) is done by Social Networks. It is likely this percentage that has been calculated is significantly low due to the fact that Social Networks are converting such low CPMs.
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    Advertising Revenue from Social Networks in Terms of CPMs are comparatively low
    17-May-10
    Gross-Net Quadrant1)
    Difficulties in Comparison
    • Intra-media CPM comparisons are associated with large uncertainties
    • Gross-Net Quadrant: Price lists have lost their binding character and can be interpreted only as a guide
    • In addition, CPM-comparisons with clear target audience definitions are meaningful in limited use
    • Nevertheless: Today’s established advertising methods offer solid returns. But, in the online space, CPMs continue to be freely negotiable and are in the range of one Euro for Social Networks.
    1) Figures have relative tendency - real values are highly dependent on concrete performance indicators and parameters. Prices according to the supplier's price lists; population ranging from 14 years of data and the main form of advertising
    Source: Expert interviews
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    Intelligent online Advertising Models realize significant revenues
    17-May-10
    Social networks like MySpace and Facebook already earn significant advertising revenue. But in comparison to their scope and potential impact of communication, these numbers are still low.
    The key here is that by using the enormous amount of traffic, they should be able to monetize networks with simplest of methods.
    Also noteworthy is that both companies have developed specific targeting technologies and continue to refine them even further (see more in later chapters).
    Because specialized Social Networks lack the mass of users, they generally target their specific audience of users and concentrate on integration with the larger Social Networks. They haven’t yet been successful with this method. An example of immensely successful monetization of a huge amount of traffic is, naturally, Google. But even Google faces the problem of not being able to offer an environment for the traditional campaign – including testing and models to establish CPM-based advertising.
    Consequently, Google is focused on a very special auction model, which increases the value of frequently searched words.
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    MySpace and Google First Social Networks with Advertising Revenue
    17-May-10
    MySpace, Fanta, Band World
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    E-Commerce Affiliate Model A special Form of Advertising
    17-May-10
    • Although Social Networks are not ecommerce platforms, they could learn a lot from them
    • By integrating directly into a social network, a business can significantly increase its revenue
    • Asian Social Networks have established “virtual stores,” which allow users to order “real goods” for virtual money. These shops, from their look and feel, are perfectly integrated into the world of Social Networks, allowing users to easily make the connection between the virtual and real world and recommend products (compare the Facebook Beacon idea!)
    • Amazon opened its platform to third-party vendors (Marketplace) and have helped monetize their own business by leveraging its large numbers of users.
    • The key to success is not only the target group, but the individual response of the user. E-commerce will only continue to be successful if the users continue to stay interested in buying online
    • Commission of such an integrated shop could be a potential revenue stream down the road. The first step in this direction for many Social Networks would be to experiment with affiliate models. For example, a cooperation with vendors like Zanox or DoubleClick – but even here success lies within the target group
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    QQ - The most powerful Virtual Currency in the world?
    17-May-10
    • The Chinese government restricted the exchange of QQ currency for real goods because the establishment of this virtual currency didn’t allow for them to tax goods being consumed, which resulted in massive losses for the state
    • Nevertheless, the QQ currency continues to boom because of the difficulties in trying to ban a currency which only exist on PCs and mobile devices – like US dollars in developing countries
    76
    Source: plus8star, own analysis
    http://english.mofcom.gov.cn/aarticle/newsrelease/commonnews/200906/20090606364208.html
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Social Networks offer interesting Approach for Market Research
    17-May-10
    • Social networks’ ability to attract individual users and create new channels
    for market research provide companies with an interesting opportunity and a potentially lucrative revenue stream
    • Users of Social Networks not only communicate their interests, wants, and preferences in their profile, but also their dislikes – and share them with their personal social network
    • This interactive behavior offers companies the chance to directly address and involve users (those fans of a certain brand or early adopter of a technology, for example) in their focus groups or new product launches
    • Social networks will be able to monetize by granting marketers this type of access when, and if they create the proper conditions:
    • If they are capable of clustering their users into these special interest groups, specific models for targeting are required and the ability to filter results from the focus groups, including Social Data Intelligence, is a key success factor
    • If this succeeds, they will be able sell access to this data for very high price. “Facebook will make deals” says Tim Draper of the big VC Fund DFJ in 2009
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    17-May-10
    Contents
    3. Business Models for the Internet of the Future
    3.1 The Pressure to Monetize
    3.2 Direct or Indirect Monetization?
    3.3 Subscription Models
    3.4 Freemium Models
    3.5 Virtual Goods and Currencies
    3.6 Advertising Revenue
    3.7 E-Commerce, Affiliate Models
    3.8 Market Research
    3.9 Chapter Summary
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    Among the Approaches to Monetizing Social Networks Advertising still offers great potential
    17-May-10
    Possible Revenue Models for Social Networks
    Direct
    Indirect
    Subscription
    Freemium
    Virtual Goods
    Advertising
    E-Commerce
    Market Research
    • As we’ve already discussed, both direct and indirect models offer different methods of monetizing the social network and creating revenue channels
    • These methods have numerous possibilities in today’s Social Networks and haven’t been fully unleashed – especially for the Freemium and virtual goods models, where there is still a significant amount of untapped potential
    • In the area of advertising alone, there is already an enormous user acceptance and openness to new methods, which can be tapped by modern models of targeting technologies
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    17-May-10
    Contents
    4. Targeting Technologies for Social Networks
    4.1 Marketing Channels: Social networks and Web2.0 sites in 2009
    4.2 Data privacy is the critical basis of targeting
    4.3 Overview of first generation Targeting Technologies
    4.4 Targeting for Social Networks and Web 2.0 sites
    4.5 Outlook on the trends of the next generation
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    Approaching the User in the Wide World of Web2.0
    Most Import Source of Revenue
    • With the transition to Web 2.0, have publishing models on the Internet completely changed?
    • The idea of user-generated content was introduced on many websites and led to new records in traffic on the Internet
    • Still, the main revenue source for many sites continued to stem from advertising
    • This raised the question of whether the same approach should be used in this “new” Internet world of Web 2.0
    Editorial Content
    Web 1.0
    Additional User Generated Content
    Web 2.0
    Advertising
    But: Should be used the same approach today?
    17-May-10
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    Web 2.0 Marketing ToolboxBuzzwords that really help?
    17-May-10
    • New online marketing techniques for Web 2.0 are often of a very creative nature
    • Most of the new tools are used to present the same old methods of advertising: PR and news over blogs or Twitter
    • The focus of interest within advertising has moved to viral marketing - network-based campaigns that spread a message via “virtual” word-of-mouth – or “word-of-mouse”
    • Despite the success stories of these creative campaigns, their overall efficiency can not be estimated beforehand, and the campaigns remain singular; they don’t repeat very well, nor are they scalable
    Web 2.0 Marketing
    Toolbox
    Viral Marketing
    Early Adopter Marketing
    Buzz and Guerilla Marketing
    Blogging and Twittering
    Brand Page
    “Become a Fan” of a Brand
    - Facebook Fan Pages
    Online Events/Webinar
    YouTube Video PR
    Company Radio & TV
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    17-May-10
    Contents
    4. Targeting Technologies for Social Networks
    4.1 Marketing Channels: Social networks and Web 2.0 sites in 2009
    4.2 Data privacy is the critical basis of targeting
    4.3 Overview of first generation Targeting Technologies
    4.4 Targeting for Social Networks and Web 2.0 sites
    4.5 Outlook on the trends of the next generation
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    The Need for new Forms of Online Advertising
    17-May-10
    The old and new terminology of online marketing
    Display Ads
    Affiliate Marketing
    Performance Marketing
    Suitable for sites with user-generated content?
    Behavioral Targeting
    Semantic Targeting
    in Video
    Ads
    For Social Networks, the starting point is no longer the static page for online marketing, but the entire site itself is dynamic and interactive New forms of advertising are necessary!
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    Traditional Targeting Technologies don’t meet the expectations for Social Networks
    17-May-10
    Previously for advertising technology, there was no difference between static websites such as Spiegel, CNN, or FTD.de and dynamic Social Networks
    HOWEVER: There was the assumption that current targeting technologies could work for Social Networks – but were not likely to meet revenue expectations
    NOW: In today’s Social Networks there is no central topic, nor is there any edited, professional content
    People are now in the
    and center of the
    their interests equation
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    What advertisers need to learn about Web2.0
    17-May-10
    Users of a Social Network
    What are the needs of these users?
    Passive users become active consumers, shareholders, make comments and PR on the brands that make them feel good and the ones with which they closely identify
    Advertisers need to learn to address these specific users according to their interests!
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    Targeting makes it possible to reach every user systematically
    17-May-10
    Today’s social media approaches Social Networks
    ?
    Become a fan of my brand!
    Comment on my blog!
    Is every user interested in listening to this?
    Can you monetize a social network this way?
    Send a Beck’s Beer to a friend!
    Come to an online event!
    How would you rate this advertisement?
    Install our song on your site!
    Each user needs to be targeted according to their interests in order to maximize the advertising impact - targeting makes it possible, and complies with data protection
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    Contents
    4. Targeting Technologies for Social Networks
    4.1 Marketing Channels: Social networks and Web 2.0 sites in 2009
    4.2 Data privacy is the critical basis of targeting
    4.3 Overview of first generation Targeting Technologies
    4.4 Targeting for Social Networks and Web 2.0 sites
    4.5 Outlook on the trends of the next generation
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    Areas of Conflict Data in legal and emotional contexts
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    Legal Contexts
    User Sensitivity
    • Privacy is one of the critical success factors on the Internet - regardless of the legal situation
    • Some users tend to gladly and willingly expose personal information – however, if they feel their data has been unwarrantedly reused and their personal privacy and legal safety are in danger, they will most likely take legal action
    • In the case of semantic advertising with GMAIL there is the continual discussion whether “Google is reading emails”
    • Today, data protection laws stipulate that Social Networks can only use personal data if the users grant them the right to do so (using “opt-in” clause)
    • The re-use of their personal data has serious legal consequences if any violations of their personal rights have been breached
    • It is expected that laws will become increasingly more strict as we move forward into the future
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    Using user data today and tomorrow
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    Today’s users expect clear and open communication ensuring them that none of their personal data will be passed on to third parties
    Social networks need to clearly communicate that they use advertising data purely for the purpose of market evaluation. Users will accept this when they can be sure no personal data is being used, and they can avoid premium service fees
    The current laws and sensitivity assessment leads to the fact that advertising data are saved as anonymous
    Behavioral targeting vendors ensure that private data are not used, placing an anonymizing server between the IP address of the user and the allocation of the advertising delivery system
    Anonymizing services and providers of “opt-out” services that are in compliance with all regulations continue to be on the increase
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    Wer-Kennt-Wen (Germany) Communication for data privacy
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    An excerpt from one of Germany’s largest Social Networks, “Wer-Kennt-Wen” privacy policy:
    “Section 4.2 The advertisements for Wer-Kennt-Wen are supplied by third parties, for example, by our contract partner, “Google”. The third advertisers place a unique, temporary or permanent cookie in your browser that can be accessed and read. When clicking on a particular advertisement via Wer-Kennt-Wen, information about how many times you have viewed a particular ad, for example, is collected and anonymously passed on to the advertisers. There is NO personally identifiable information, such as your name or address, generated or forwarded on. Nor can you be identified by any of the details of this information.” A typical, open and clear correspondence from a large social network.
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    Contents
    4. Targeting Technologies for Social Networks
    4.1 Marketing Channels: Social Networks and Web 2.0 Sites in 2009
    4.2 Data Privacy is the Critical Basis of Targeting
    4.3 Overview of First Generation Targeting Technologies
    4.4 Targeting for Social Networks and Web 2.0 Sites
    4.5 Outlook on the Trends for the Next Generation
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    First generation targeting approaches allowing for more focused banner advertisements than ever…
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    First Generation Targeting
    Banner or display advertising, next to search advertising is now the most popular and commonly used form of advertising
    Without targeting, the amount of banners wasted would be enormous – which is one of the reasons for eroding CPMs, next to "click generators" such as photo albums
    Traditional Banner Advertising
    SemanticTargeting
    Contextual Targeting
    Behavioral Targeting
    • Providers scan a page for keywords and manage ads on this basis, mostly display ads
    • Google AdSense is the best known example
    • The next developed step after contextual targeting
    • Providers identify main themes and the “meaning” using sophisticated technologies
    • The most appropriate banner is also shipped out from here.
    • Providers interpret the interest of a user from the pages they’ve previously visited
    • According to this type of targeting, the user is assigned to a certain target audience and delivered relevant advertising
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    Contextual Targeting Google AdSense made it famous…
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    Providers of this context-sensitive advertising technology browse a web page automatically by keywordsCertain terms are found, picked up, and delivered to the relevant advertisements. For example, Tennis = sports advertising  delivered to an article about Boris BeckerGoogle AdSense is the best known provider of this modelContextual targeting is suitable for high-content Web pages, but its disadvantage lies in the fact that the meanings of the words are not analyzed in their context
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    Semantic TargetingRecognizing meanings within Web sites
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    Semantic targeting evolved out of context-sensitive advertisingKey concepts are examined in relation to one other by sophisticated database technology, and their significances are analyzed. For example, in an article about Boris Becker and tennis = glamourSemantic targeting is especially suitable for high-content pages - the advantage is that the technology “picks up” or “understands” what the user is reading and delivers related advertisements
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    Behavioral TargetingInterpreting users’ tastes and preferences
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    Behavioral targeting attempts to draw conclusions about a user's interests and evaluates their target group membership based on the websites they’ve visitedThis only works by storing a cookie in the web browser of user’s computerThe data stored in the cookie is reconciled with the supplier’s database (on the basis of statistical forecasting models) and assigned to individual target groups
    Simplified Example of Behavioral Targeting
    User Surfs the Net....
    Website 1 ESPN.COM
    Website2
    CNN.com
    Website 3
    Porsche.de
    Soccer
    News
    Automobile
    ADServer synched
    ADServer synched
    ADServer synched
    Cookie
    saves: Sports
    Cookie
    saves:
    evtl. Male
    Cookie
    saves:
    Male, Sports, Car
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    Behavioral TargetingUser orientated -including conclusions from the past
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    Advantages/Disadvantages of Behavioral Targeting
    • Behavioral targeting puts users in the center of focus and not the contents of a particular web page. Thus, allowing it to draw better direct conclusions about the user
    • However, it tries to draw conclusions from past data (web pages visited) along with the help of statistical data and forecasting models
    • Behavioral targeting is good when there is no other detailed data available about the user and the visited web pages are well suited for the target groups
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    Current Targeting Technologies are gaining importance
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    Contextual Targeting
    Banners without Targeting
    • Banner advertising without targeting will beless likely asked for in the future
    • Due to the amount of wasted spending, this approach will be replaced by modern targeting technologies
    • Contextual Targeting will be continually replaced by semantic targeting in the future
    • Google AdSense, a simple and usable application will keep this type of targeting alive in the future
    Behavioral Targeting
    Semantic Targeting
    • Behavioral targeting also will continue to grow in importance
    • As users visit more sites more quickly, their interests can be determined more frequently
    • This is especially true for pages with editorial content
    • As sites increase with mixed content and user-generated content, semantic targeting will continue to grow in importance
    • This is especially true if a user is not easily identifiable
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    For Social Networks these Technologies are still only suitable to a limited extent
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    Social networks are characterized by their content and special user behavior, strongly differing in this way from other pages with editorial content:
    • User profiles, pictures, forums, and communication are emphasized  Users commonly visit other user profiles. This complicates categorizing the interests of a single user based on their surfing behavior. Social networking sites are subject to continuous changes
    • This makes the use of semantic and context-based technologies very inefficient.
    • Even the statistical forecasting methods of behavioral targeting are inefficient for Social Networks
    • Users spend lots of time in Social Networks, but the simple fact that they visit one is not enough for solid interest categorization
    • Users can also “drill down” and specify their interests on their profiles - you can then identify the user and evaluate the data with modern targeting technologies
    • The enormous, intense usage and the amount of time spent on these Social Networks can only be efficiently and successfully examined using today’s special, most modern targeting technologies and the evaluation of users’ self descriptions - this will be covered in more detail in the following section
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    Contents
    4. Targeting Technologies for Social Networks
    4.1 Marketing Channels: Social Networks and Web 2.0 Sites in 2009
    4.2 Data Privacy is the Critical Basis of Targeting
    4.3 Overview of First Generation Targeting Technologies
    4.4 Targeting for Social Networks and Web 2.0 Sites
    4.5 Outlook on the Trends for the Next Generation
  • Social NetworksBenefit from End User orientated Marketing Activity
    • For content sites, semantic and behavioral targeting are the best solutions and allow better results than normal banner advertising
    • Soccer and sports are interesting for the user who visits a professional soccer club page, but this information is not sufficient for a precise description of the target group (Is he an “active” or a “passive” soccer player, wealthy or poor?)
    • On Web 2.0 pages and especially on Social Networks, the user creates his profile and adds his interests, what he likes, and describes his attitude. This allows for a systematic approach
    • MySpace and Facebook, as technological newcomers, have realized that the user is focused in the center and content revolves around him. Therefore, the main focus of the marketing strategies must be on the user
    • They allow advertisers to reach interested users right away and make it possible to take out ads efficiently without having to consult imprecise data from traditional surveying methods
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  • User Profiles Source of Demographic and psychographic information
    Typical Content of a User Profile
    Usage of Self Written Content
    • What has been unthinkable only few years ago is now reality
    • People like to write about themselves, their interests, and their dreams and so provide information on the internet
    • Personal data is displayed: it is no longer a secret but rather an instrument of communication
    • Hence, user generated content for Social Networks is created voluntarily
    Personal data
    Demographical data: age, profession, income, etc.
    Interests (music, movies, books, sports or things like favorite quotations, etc)
    Geographical data such as place of residence, studying or travel destination
    Friends and social graph
    Group activities
    Wall and comments
    Photos
    Specials such as Blogs or Video podcasts
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  • A complete user profile can be very extensive
    Example:
    • Here is the profile of the MySpace co-founder Tom Anderson at MySpace
    • He automatically is always the “first” friend/contact after registration at My Space
    • Like most of the other users of a social network, he describes his interests, his tastes in music, the movies he likes, his age, where he lives and much more
    • Therefore his detailed profile is not a unique case
    • The younger the user the more data he gives away (“digital native”)
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  • Due to data protection Not all data in Social Networks can be used for further processing
    How to use data in the user profile:
    • 1. Personal data
    • 2. Demographic data: age, profession, income, etc.
    • 3. Interests likemusic, movies, books, sport or quotations
    • 4. Geographic data like place of residence, studying, travelling
    • 5. Friends and Social Graph
    • 6. Group activities
    • 7. Wall and Comments
    • 8. Photos
    • 9. Specials such as Blogs or Videopodcasts
    NO GO
    OK
    OK
    OK
    Upon approval by user
    Upon approval by user
    Upon approval by user
    Upon approval by user
    Upon approval by user
    Ok, if by content (see Gmail)
    • The further use of voluntarily given information in a user profile can only occur according to current legal data protection regulations
    • Besides data protection, there is also the User and his/her sense of privacy which has to be considered
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  • Facebook and MySpaceThe largest and most innovative Social Networks already offer targeting solutions
    Facebook has integrated a similar function as “self-service” under the name Interest Targeting
    • It is more detailed than the one of MySpace and makes it possible to choose single fields in the profile, in order to narrow the target group down
    • There are some restrictions to this technology: Only one banner size can be selected, the website is divided into general advertising space and advertising with interest targeting and there is no help in the selection of the interests.
    • Therefore, clients do not know if their target groups play soccer as often as they watch a movie – which makes it difficult to evaluate the data correctly
    • Interest targeting provides a very good targeting solution for Social Networks, yet is not sufficient to satisfy the demands of agencies and advertisers, as they only reach half of the target group and cannot define their “view of the world”
    MySpace Hypertargeting
    Facebook Interest Targeting
    MySpace refers to targeting of interests in user profiles as Hypertargeting
    • No personal data such as name or e-mail address is used
    • Yet, the interest targeting of MySpace is not able to implement the definition of the target group for advertisers, since its capacity is not sufficient and MySpace is aimed rather at smaller clients in special niches
    • According to MySpace, hypertargeting enhances the usually low click rate in Social Networks from below 0.5% to a minimum of 3 times more, and with sponsorships to more than 6 times more (3%).
    • This shows a huge potential, if this method is extended
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  • Targeting Approaches Facebook Interest-Targeting
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  • Targeting ApproachesMySpace Hypertargeting
    Quelle: http://www.slideshare.net/MySpaceDevTeam/myspace-apps-advertising-programs
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  • New Targeting ideas haven’t yet been established by German Social Networks
    Facebook &
    MySpace
    Technology on
    the German
    market?
    • Has been adapted to the German market but is not a sufficient solution
    • Facebook does offer interest targeting, but the possibility of geo targeting or selection of a certain place such as a specific university is limited
    • As shown, the big US networks have already started to offer some targeting solutions
    • With the hyper targeting method of MySpace, an advertiser cannot identify an entire target group for his product – corporate clients are reluctant and try - as ‘Fanta’ did - to implement viral marketing campaigns which are not scalable
    What are the
    German Social
    Networks doing?
    • German Social Networks do not yet have a targeting solution
    • StudiVZ militates against using the interests of the users – they will probably not be able to maintain such hard a line, since the monetization of the platform would be nearly impossible otherwise (they might concentrate on the group memberships of the users)
    • WKW (‚Wer-Kennt-Wen‘) holds a clause in their data protection regulation which aims at utilizing data for advertisement and market research but so far nothing important seems to have come from it
    Idea of ADTELLIGENCE: Offer a modern targeting-solution to the German market for targeting in Social Networks
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  • ADTELLIGENCE ´s Targeting Technology
    The objective of the ADTELLIGENCE Targeting Technology is to fuse the interest targeting of Facebook and MySpace with the traditional way of defining target groups and to facilitate an integrated approach  the implementation of socio-psychographic targeting
    • Each advertiser should have the possibility to define his/her own target group in detail individually, without wastage or imprecise statistical projections.
    • The approach of MySpace has already demonstrated the successful increase of response rates – with the ADTELLIGENCE approach the expected results will be even better
    • An integration into the value added chain makes it possible to display each campaign only to those who belong 100% to the previously defined target group
    • No expansions, surveys or statistics will be taken as a basis except by the individual user himself
    Why isn’t anyone else already applying these possibilities?
    In August 2009 the startup Rocket-Fuel near Stanford University in the Silicon Valley was launched and partly aims at improving advertisement at Social Networks, too
    Advertisers are not necessarily active users in Social Networks and therefore must be made familiar with it step by step
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  • How is it possible to draw a comparison of user profiles with a defined target group?
    A comparison between user profiles and target groups takes place through
    high-performance databases
    Ideal Targeting Possibilities in Social Networks
    • Due to precise market research, advertisers usually know their target group very well – still, they haven’t yet been able to determine exactly its ways and location in the net
    • In Social Networks, millions of users do not only give their socio-demographic data voluntarily but also their interests and further information – ADTELLIGENCE provides the possibility to adjust the delivered data to the description of the target group. This is a huge advantage for Social Networks and can be done with all kinds of data (age, favorite movies, hobbies, etc.)
    • For this, a technical high-performance database has been built which allows millions of page impressions within only few seconds
    • The adjustment now happens directly without detour via forecast processes
    But what do other providers of Web 2.0 pages, e.g. music portals or video-pages, do?
    • For them, targeting can be profitable as well! Today it is possible to draw conclusions on a user‘s lifestyle through knowledge of his/her taste in music: Who is more likely to buy life-insurance? The “Tokyo Hotel” or “Oasis“ listener? … With such minor information, it is possible to define the age and get further information about the listener on music pages like last.fm or Spotify
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  • ImplementionHow does ADTELLIGENCE‘S Approach “Targeting for Social Networks” work?
    Targeting with Social Networks
    No interpretations required – Each user behind the target group can be reached
    (simplified image)
    • Only anonymized data such as interests or demographical information are transmitted
     NO private contact information or IP-addresses will be retrieved
    • Only the user whose interests exactly match the target group definition get addressed
     wastage in reaching a target group is in now advertising history.
    From now on, advertisement always precisely fits to the person it is meant for!
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  • Many advertisers use pre-assembled milieus ADTELLIGENCEsupports traditional target- group descriptions
    How do advertisers of Social Networks benefit from ADTELLIGENCE, if they use it as a standard?
    • Many advertisers use – apart from their own definitions – pre-defined target groups like the Sinus or Sigma milieus*
    • ADTELLIGENCE totally supports these widespread descriptions of target groups
    • Clients do not have to get used to other complicated systems and can easily adapt to the new possibilities of socio-psychographic targeting
    • In addition, advertisers get feedback from what users are interested in outside of the milieus
    • Clients are able to select standard milieus directly with a mouse click and then adjust further details
    • Here you can see a screenshot from the menu:
    1) Sinus, Sigma are incorporated brands of Sinus Socio Vision in Heidelberg and the Sigma GmbH in Mannheim
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  • Advertisers Define target groups explicitly through the Targeting Engine
    What are the advantages for advertisers…
    … if the Targeting Engine is integrated into a Social Network?
    • Standard milieus are just one possibility. A target group can be freely defined in all details
    • Every customer can define their own target group from a number of unlimited possibilities
    Define for example:
    • from ABBA to Zappa  millions of music titles
    • from Automobile to Zoo  thousands of interests
    • from Frankfurt to Shanghai  Geo-Targeting
    • from Teenager to Businessman  every age, every phase of life and income
    • from Adventurous to Conservative  every social milieu
    • age, job, gender…
    • many more details are easily definable
    • …as well as more characteristics and interests
    • only users who match the target 100% are being addressed!
    • Waste? Absolutely none!
    Screenshot aus dem Targeting Menü
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  • ADTELLIGENCE Targeting Engine  user-optimized interface every imaginable selection can be made
    Reporting & Analysis
    Unlimited Targeting Options
    Recommendations
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  • Real Time feedback, real time reaction, 100% optimization
    Select tar-
    get group
    Plan
    campaign
    analyze &optimimize
    Run campaign
    ADTELLIGENCE
    Targeting 2.0
    • A fully automated process allows you to filter and analyze data about the process and client’s feedback in real time evenwhile the campaign is still running
    • The target group definition which has been developed through market research and surveys, can be checked in real time and optimized
    • While the campaign is active, feedback about its success can continue to be gathered.
    • Result: A better approach to marketing.
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  • Social Networks get better marketability options and become much more profitable
    How do marketers and operators of Social Networks or Communities benefit...
    from using this kind of Targeting Technology?
    • Operators of social networks want to develop their advertising revenue through socio-psychographic targeting
    • Operators can both gain new clients because of the added value and increase the CPM with already existing clients, as the response-rates will rise considerably (e.g. MySpace)
    • Commercialization of Social Networks as a whole can be replaced with precisely adjusted target group marketing:
    • With this method even profitable affiliate models can be leveraged to specific target groups
    • The disadvantage of having a huge heterogeneous amount of users can be turned into an advantage
    • Social networks can become a cash-cow in the portfolio of the operator
    • In addition, marketers and operators can provide their clients with detailed reports about the effect of campaigns in certain target groups
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  • Media Agencies can benefit by more effectively controlling campaigns
    How do Media Agencies benefit?
    By increasing the customer satisfaction and effectiveness of their campaigns
    • The effectiveness of the campaign can be reviewed in real time and adjusted, if necessary
    • Extensive reporting-tools are available for clients and media agencies
    • Readjustments, as well as a sudden change to the target group, are possible in real time, which can have a positive effect on the campaign
    • Testing campaigns for different target groups as well as scenario models is easy and cost-effective.
    • In order to accommodate advertising clients with specific preferences, multi-leveled campaigns are made possible to spark their interest
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  • Social Networks benefit from adequate and interesting advertisements
    How can Social Networks benefit?
    Less spam and a higher relevance of effective advertisements
    • The use of data constitutes a problem, not only in terms of data protection in the legal sense (more on that later) but also in a personal emotional sense – when “Facebook Beacon” wanted to give user data to third-party supplier, the users rebelled
    • User acceptance can be gained through open communication about exactly what data is being used and how, and by pointing out the advantages for the user
    • Through a targeted drive, every user receives less and more specific advertisement
    • Systematic advertisement is important and interesting for every user
    • Relevant advertisement is happily accepted by every user – overall media surveys have shown the same results again and again
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  • ADTELLIGENCEA targeting solution completely based on commission
    Clients only pay for their benefit!
    It’s a real commission model as everyone in the value-chain can use the advantages from targeting, reporting & market intelligence and recommendations
    To build and scan target groups
    Campaign Mgmt
    Real time
    Reporting
    & Mafo
    To control campaigns
    This produces a win-win situation in the value –chain for all parties concerned!
    ADTELLIGENCE Targeting Engine
    On-Demand
    Business model
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  • Easy technical integration for Web site operators
    The technical integration into the existing system landscape is a walk in the park!
    Technology
    Highlights of the next generation today:
    Software as a Service/on-demand model
    • Performance through Cloud Computing with Load-Balancing & AutoScaling
    • Extremely high data security – on demand System on decided servers
    • Service oriented architecture allows an easy and flexible integration
    • Support from standardized APIs and WebServices for an easy integration into existing landscapes such as AdServer or Campaign-Mgmt
    Clients don’t have to purchase new systems
    • The technique is fully integrable at different positions of the chain: Marketer, Social Networks or AdNetworks can attach directly per APIs and a White Label Solution makes it possible to directly integrate the targeting into your system
    • Optionally: a total integration into the Campaign-Mgmt or supply of a distinct system is possible
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  • Benefits for Operators, advertisers and users
    • Social networks, marketers, media-agencies, advertisers and users can benefit heavily from the new possibilities of targeting
    • Thanks to the new targeting technology of ADTELLIGENCE, the dilemma of having to address the entire community as a whole, which agencies and marketers in Social Networks had to face up until now, has come to an end,
    • The heterogeneous target group of a social network becomes a huge advantage and unique feature and enables operators to…
    • …gain higher response rates & CPMs
    • …maximize the efficiency of campaigns and minimize wastage
    • …receive an optimized campaign, reporting & market analysis in real time
    • …reach people in Social Networks with actually relevant advertisements
    • …increase revenue for the operator
    • Alternatively, a combination with previous technologies such as semantic or behavioral targeting is possible, but only in consideration of data security
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  • Identify valuable Early Adopters of a Network
    • The social graph describes the network of friends in a social network, it can also be used to analyze and optimize advertisement (if the user agrees) – through which the especially interesting Early Adopters/Influencers can be identified
    • Advertisers can easily achieve network effects with two Early Adopters:
    • Social Hub (which has particularly many contacts): can be used to spread the advertising message
    • Expert Hub (which is the expert in his field): can be used to implement new technologies and solutions (e.g.: iphone, VDSL, etc)
    The identification and address of these Early Adopters
    is possible with the technology of ADTELLIGENCE
    Expert Hub
    Social Hub
    Expert in his field. Gives recommendations based on experience and knowledge – very good for experience- and search customer
    Spreads the message faster, as they have many contacts– excellent for consumer products
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  • Market Research Data Gained and adjusted to the target group during the campaign
    Do all Mercedes drivers like sailing or do they go out with friends?
    Clients who like soccer also like beer. But how many of them actually play soccer?
    What kind of music does someone who buys an insurance listen to? Tokyo Hotel?
    • You can find out what clients are really interested in and what they wish to possess  Amazon recommends products which match the users’ choice of books. This kind of recommendation is also useful for market research and campaigns
    • ADTELLIGENCE offers the possibility to gain and process new data while the campaign is still active
    • This helps to control the target group and offers an enormous advantage for market research
    • Insight into the desires of the clients and target groups is possible and there is no need for expensive and time-consuming market research data
    • Additionally, you get the opportunity to receive a matched analysis to arrange further campaigns and use cross-over effects more efficiently – you gain lots of new information about the client:
    ADTELLIGENCE calls it “New Market Intelligence”
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    Contents
    4. Targeting Technologies for Social Networks
    4.1 Marketing Channels: Social Networks and Web2 .0 sites in 2009
    4.2 Data Privacy is the Critical Basis of Targeting
    4.3 Overview of First Generation Targeting Technologies
    4.4 Targeting for Social Networks and Web 2.0 Sites
    4.5 Outlook on the Trends for the Next Generation
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  • Better understanding of the individual users within Social Networks
    In the future, it will become increasingly important for businesses to know what has been written about them on the Internet and how advertisements can be effectively implemented in order to obtain viral effects and authenticity
    Social networks qualify for an analysis of how people cope with new products and how they define themselves in their social environment
    Tools have already been developed to help understand people in Social Networks and evaluate their interests
    Analyze Toolset
    Collaborative
    Filtering
    Recomm-endation
    Engine
    Social Graph Analyzer
    Early Adopter Identifier

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  • New Market Intelligence A mixture of quantitative and qualitative collected data
    The next generation of market research collects a combination of statistics from quantitative data and qualitative evaluation in order to draw conclusions such as:
    “How do people living in NYC judge my campaign compared to
    those living in Tokyo?”
    Users already express themselves in the Net. Increasing interrogation is not necessary, instead what are needed are better analytical tools which are linked to the product, and marketing strategy in real time
    Analytics
    Reporting
    Recommendations
    Did you know that your target group also likes…
    Soccer
    ABBA
    Cinema
    Social Graph Analysis
    Blog Opinion Tracking
    Social Network Trends Analysis
    Twitter Buzz Monitoring
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  • Customer relationships will direct the future of targeting and integrate customer feedback into sales
    Traditional Customer Relationship Management
    moves more and more toward the customer. They update their own data in the C2C network which is linked to CRM
    People
    will become directly integrated into the Production & Development Process. Undesirable development of products can therefore be minimized. Social networks are the interface to the client
    User Generated Shoes?
    …will supposedly be on the fringes since not everyone is a designer. But: The user possesses an opinion that should be listened to, since no one wants to be just a number in a survey
    Super Distribution
    It will become much easier to interact and communicate with the customer via Social Networks and to respond to their wishes. If a client then recommends something to someone else, he should get a bonus or commission
    Promoter Relationship Management = CRM 2.0?
    Suppliers like Earthfaves.com offer solutions for clients who want to bind faithful clients and reward them. To automize and evaluate this kind of customer loyalty is becoming more and more important. It could be the prototype of a new sort of management software that could also be implemented in other areas
     The new targeting solutions approach the individual user within a network – Social Networks can increase their competitiveness if their clients are satisfied
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    5. Future Strategies for Social Networks
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  • ChallengeInnovation Footrace of Social Networks to receive Advertising Revenues
    Competition for User
    Market Saturation
    Cut-throat competition
    Competition for Advertising Revenues
    Innovation Footrace
    of Social Networks
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  • Innovationsmust be carried out on Each Level of Social Networks
    • In the future, business model innovations will become more important
    • Global competitive pressure and faster innovation cycles lead to a development of products and methods of offering them to create distinguishing features
    • New competitors with new software can still be possible (e.g. Twitter) – network effects and venture capital will help
    • Therefore, the direction and range of aspects of Social Networks change and partly renew themselves in the next years
    Business Model Innovation
    Feature Innovation
    • Social Networks like Facebook and LinkedIn accelerate the innovation cycles and constantly integrate new features on their sites. Users have to get involved and are rewarded if they stay and create their pages on their own initiative
    • Incentives have to be created, the open source software development provides examples for it
    • Apart from the competition for advertising revenue, new competitors will try to focus on single building-blocks of the value-chain (agencies or marketer buy Social Networks or vice versa)
    • Social networks must offer the advertisers intelligent access to the user sites – new targeting technologies will be key.
    AdvertisingInnovation
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  • Three Scenarios Not all Social Networks head in the Same Direction
    Platform-Strategy
    Possible Strategy-Scenarios for Social Networks
    Online-Offline-Strategy
    Portfolio-Strategy
    Influencing factors
    Extremely
    elastical request
    Unclear willingness of the user to pay
    Rising cost pressure
    Financial crisis affects advertisement negatively

    Global competition
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  • A Platform Strategy Focus on open APIs
    • A platform business model focuses on the page or the proprietary offer – the added value is not
    drawn from the content of the page itself but from the overall position within the market
    • That means that the offer itself (e.g.: iTunes Shop) is just part of the added value for the customer
    (in the example consistent of iPod, iPod Docking Station/Boxen, iMac, etc.) and therefore it becomes more important through the triggering of network effects
    • A Social Network turns into a platform if there is potential to interact with the site from the outside –
    Open APIs play an essential role in this as well as the possibility to integrate offers from third
    parties into the product range of the page
    • The key factor for sustainable success: to make users and third parties dependent on the product/content of the platform, so that the cost to swap to another platform would be enormously
    high
    • Network effects on the product-offering site (more and more programs for Windows) and on the demand site (Windows pays off more and more through all the software) push each other – that kind
    of effect could be repeated at Social Networks
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  • A Platform Strategy Trigger for Extensive Network Effects
    Schematic demonstration of network effects when opened for third parties
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  • Social networks get a chance to charge third parties for access to the platform
    • Third parties have to pay the operator to use the platform, though for the end-user it is usually free
    • Features that have been implemented by third party providers will mostly be chargeable
    • These could be attractive features for the user who is willing to pay for some extras
    • These could also be virtual shops whose access is free of charge for the user but third party providers can sellvirtual or real products
    • The construction of additional features gets partly outsourced – which minimizes the risk of developing wrong features, provides a perfect way to integrate advantages for the user and earn money with it at the same time
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  • A New „Operating System“ could be generated in the Future
    • Social networks already have integrated functionalities which in the past were subject to single programs
    • Communication services such as email or chat are almost exclusively used via Social Networks by the younger audience
    • Also on the gaming side, a utilization of networks is easily observable
    • Facebook, with its 3rd Party Programs, is the most advanced social network
    • A social network with platform strategy can become the operating system of the net
    • Further communication solutions (video, phone) as well as shop-services are possible in near future
    • Also application programs (word processing operating systems) are imaginable
    • For this reason, a social network would more or less provide the user with exclusive access to all applications
    • Examples from other areas are the sales force CRM “Force.com Platform,” Apple with its App-Shop and Amazon with its 3rd party marketplace and Cloud computing-solution
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  • How to succeed with an open and a closed PlatformTwo Stories
    • Traditional “Pay as you go” or “Pay per Unit” Business model
    • Former niche providers (simplicity of operating system that is deliberately incompatible)
    • Continual innovation of products and fast entry into foreign markets (music market) has created synergy effects with the traditional portfolio and the attractiveness of the closed system increases
    • Advances in innovation at digitalizing allows transfer of technology from computer- to music industry
    • Core competence keeps niche product in the premium segment  leadership of quality
    • Model of continuous feature and innovation of product too difficult for the mass market, since the margin is not high enough and exclusiveness would be lost
    • B2C Business model
    • Due to an advantage over traditional booksellers, a cost benefit can be used to win over a share of the market
    • Today, the business model is continuously developing (e.g. Cloud Computing)
    • Changing from bookseller to a global trading platform & marketer of digital goods with many synergy effects
    • Cross-Selling Possibilities: “The shoe to the song,” or “The cook book with the fish fingers”
    • Third party providers take over the Long Tail/Niche market – less margin but more attractive platforms – openness becomes the strategy to success
    Great success with closed System iTunes, iPod, iMac
    Great success due to “Vendor Lock-In” effects and Cross-subsidization  similar to the Microsoft strategy of the 90s
    Great success with the Open Platform
    Mass-market and „Long Tail“ market-niches get covered
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  • Specialized Social Networks The need of New Revenue Models in the Future
    • Not every social network is able to expand and become a big platform
    • In particular, specialized Social Networks are restricted
    • Due to a limited amount of users, the platform is less attractive to third party provider
    • Only with very special and therefore expensive features, this strategy could be successful
    • Additionally, the technological power to create lots of innovations is restricted for lack of revenue
    • Not all specialized Social Networks will be able to survive with the help of the introduced revenue model
    • Revenues of advertisement as well as revenues from virtual goods will be small due to few users
    • Not all networks are suitable for Abo- or Freemium-Models
    • This is why specialized Social Networks are trying to develop new revenue models
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  • In Terms of MonetizationSpecialized Social Networks will be looking for a Link between Online- and Offline-World
    …Offline Business complements Online Business
    Social Network
    Offline World
    Online World
    Event
    Shopping
    Community
    Travel

    • Usually, a specialized social network is characterized by highly active users in a certain subject area
    • The user is not only interested in the virtual world but also likes to interact with the community and the subject in reality
    • Additional ways to monetize could be created through attractive offers in the offline world which are related to the topic of the platform and provide real interaction with like-minded people
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  • An “Offline Strategy” If the technological innovation is not strong enough
    …Offline business complements online business
    • A combination of online and offline activity is particularly recommended to Social Networks which have started from a niche
    • Regional players like KWICK, lokalisten or Decayenne focus on different regions – that‘s why it’s a good idea to organize regional events and encourage the community to participate.
    • Schwarzekarte or Decayenne limit access to parts of their platform in order to produce exclusiveness – that’s how they can legitimately charge higher prices at their events
    • Super-regional players like Simfy.de (No. 1 music-streaming-service in Germany), or Carsablanca.de (“Oldies” Community) also fit into this model since they are specialized in certain interests
    • In addition to events, travelling and exclusive products could be offered
    Especially suitable for communities with a high identification factor and a regional focus, and/or if one cannot provide “leading edge” technology because it is too expensive
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  • Social Networks as a pure marketing- and R+D-Instrument in a portfolio strategy
    Often venture capitalists or corporate groups are involved in Social Networks
    • Google, Microsoft and News Corp made sure to get a high number of users when they bought or invested in Social Networks
    • Single Social Networks are not always run as profit center
    The operation costs of Social Networks are very high. In 2009, Facebook had to raise more than €300 million in venture capital and YouTube's costs exploded due to real-time video streaming
    From the perspective of a corporate group or venture capitalist, an unprofitable social network can still be a wise strategy:
    • The ability to reach a broad scope of clients
    • New synergies and network effects between single companies rise in the portfolio: cross-selling possibilities, scaling, mutual marketing, and even broader scopes can arise.
    • Increased market power allows control over parts of the value-added chain and trigger more network effects
    • Startups additionally take up the role of an outsourced R&D department – they can develop innovations very quickly and test them on the market, in order to integrate them into a corporate group afterward
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  • An unprofitable Social Network in a portfolio strategy aggregates and distributes traffic for others
    …and in the end it is billed below the line
    Venture Capital Funds/ Holding Structure
    • Social networks that are “stuck-in-the-middle” – platforms that are neither big nor specialized – can still fulfill functions in a greater context
    • As network aggregator and –distributer within a portfolio it can be of purpose to the whole picture
    • In this way, the loss of social network illustrates the marketing- and R+D costs of the portfolio
    Social Network – aggregates & distributes Traffic on
    Information
    Sites – News pages will let their information be pushed by RSS in Social Networks
    Theme-
    Portals
    Users of Social Networks will directly receive topics that are relevant
    Advertising & Marketing from 3rd providers
    E-Commerce Portals offer matching products through targeting
    API – enables foreign suppliers to access an own website pool (see Ebay – charging is integrated)
    Startup Portfolio for Innovation
    Partner
    3rd Providers
    Startup with new Feature
    Startup B2B
    Startup with Website
    Exchange of Information/RSS
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  • Social Networks Three survival strategies
    “Winner-takes-all” strategy, suitable for generally big, technologically innovative Social Networks with a lot of patience
    Platform Strategy
    Online-Offline Strategy
    “Small is beautiful” strategy, suitable for Social Networks with clear subject-/user or regional focus
    “Stuck-in-the-middle” strategy, suitable for unprofitable Social Networks, which can demonstrate that they can be of value in a portfolio
    Portfolio Strategy
    • Social Networks have to be successful in one of the three strategies in order to survive
    • Especially the three big German Social Networks are already struggling to survive – if they want to compete with Facebook in the platform strategy they have to increase their innovation power considerably
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    6. Summary and Conclusions
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    The importance of Social Networks will persist in the future
    Lately, Social Networks have become some of the most visited sites in the Internet and will be even more important in the future
    Social networks not only could replace email and chat but also provide a platform for all internet-services
    In Social Networks, otherwise anonymous Internet users reveal a great deal about themselves and talk about their interests
    1
    The importance of Social Networks is still growing
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    Who is the Winner?
    Depends on “Global vs. Local” and “General vs. Specialized”
    Global/International
    • It has been demonstrated that technological innovation is the number one factor if you want to succeed
    • Global or local and/or general or specialized: Social Networks need to continue to concentrate on technological innovations
    • Since fast innovation depends on capital, capital coverage will have the last word and two things play an important role:
    • 1) The perspective that investors see in a network and with it, the readiness to allocate more money
    • 2) The actual situation of income of a Social Network, i.e. with positive cash flow as in the business networks
    • No matter what, the business model should be focused to key monetization factors
    Specialized
    General
    Local/Regional
  • Is there a trade-off between growth and monetization?
    ?
    • Popular Social Networks, such as national networks in Germany, propagate trade-off between growth and monetization
    • The growth model of the past which aimed at getting new users through network effects will become more and more difficult through disruptive competition
    • The frontiers of the traditional growth model are already visible in most of the markets
    • The focus on growth will be substituted by the focus on innovation, since that’s the only way to keep current users and gain new ones
    • Only the future will tell if MySpace has made a mistake with setting the focus on monetization, as some people claim
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  • Only Innovation Power and Monetization at the Same Time can ensure Success
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  • Social Networks that successfully promote innovations, could help monetize one another
    !
    • Numerous users permit the implementation of innovative platforms for Social Networks
    • Sponsored models build the basis
    • Virtual currencies and E-Commerce-Integrations could become a second pillar
    • Abo-/Freemium-Models could provide a price advantage for the user but the barrier of implementation is high
    • There is still a long road to reach a business model with various pillars, therefore quicker solutions are necessary.
    • In the specialized area innovations go hand in hand with monetization
    • Good examples are XING events or LinkedIn Premium Webinars
    • “Semi-specialized” Social Networks like schueler.cc or StudiVZ either have to expand their scope or have to use targeting approaches to distinguish their quite undifferentiated user group.
    • The more specialized a network is the more important are quality, individuality and exclusiveness as distinguishing features
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  • Social Networks can use Topics such as Advertising, E-Commerce and Market Research to achieve Fast Monetization
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    Possible Revenue Models of a Social Network
    Direct
    Indirect
    Subscription
    Freemium
    Virtual Goods
    Advertising
    Virtual- & e- Commerce
    Market intelligence
    • The major pillar of every online Community
    • Great potential with targeting
    • Online Communities can leverage competitive advantage through detailed audience targeting & reporting
    • Not only an affiliate model but real integrated e- & v- Commerce shops
    with personal & social recommendations
    • Quick implementation possible
    • Digital Goods like games, music & videos could become a second major income stream
    • Integration possible relatively quickly
    • Great potential with new technologies
    • Very interesting in the long term
    • Already cash cow in online gaming and some communities like Netlog or QQ
    • The better alternative than subscription through pay as you go & micropayment
    • In competitive & fast moving markets direct monetization through subscriptions or paid content are possible.
    • But they make sense only in niches like “decision makers” or communities with specialized focus groups & with high vendor lock-in effects
    • Local communities could use offline monetization through events etc.
    • Nearly impossible for mass market  ad revenue model is more attractive
    Targeting Technologies will help to gather “low hanging fruits” in the field of indirect monetization
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    • In the short term, advertising will continue to be the main income model of a social network – and in the long term the indirect pillar that gets more and more important
    • Through advanced targeting, the advertiser can access attractive target groups and gain higher revenues
    • Also virtual goods and E-Commerce integrations can benefit considerably from targeting methods: Which user gets which product offer?
    • The yet untouched area of market research approaches gains importance through targeting - clients get access to tailor-made target groups
    • Finally, targeting is a way to optimize the entire social network – to decide which user gets delivered which contents and information, and can be made considerably efficient.
    • Users of Social Networks likely to discuss their wishes and interests – data that has to be collected and evaluated in order to gain insight and to minimize the risk of false strategies
    Sophisticated targeting,
    recommendation & collaborative filtering
    technologies are key to individualizing high traffic Social Networks for a sustainable development and a meaningful business model
    In addition, indirect monetization models have a competitive advantage so that companies like Google (as they just did with the navigation sector) could not attack the business model through a “free” offering).
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  • However, …
    ...there is no universal or perfect business model
    Remember…
    success lies in the appropriate combination of different revenue models and continuous innovation and development!
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