Making Social Networks Pay, Part 1: Strategies and Technologies

Nobody, not even Facebook founder Mark Zuckerberg himself, has yet successfully produced a proven, sustainable and scalable business model that can satisfactorily monetize the vast ecosystem of the social networks — Facebook, MySpace, LinkedIn, Twitter, etc.

The reason for this could be rooted in the basic noncommercial nature of social networking services, which today are more about conversations than consumption.

However, that inconvenient reality hasn’t impeded the current onrush of third-party, investor-backed startup companies now flooding into this market, intent on finding customers among the hundreds of millions of consumers who turn daily to the Internet and the social networking services to share with one another their opinions, advice, grievances, and recommendations about the products and services with which they interact.

The numbers are so enormous, the opportunity so compelling, that the third-party hopefuls just have to try.

Getting Them Where They Live

In January 2009, digital marketing research and analysis aggregator eMarketer issued a report titled “Social Networking Still the #1 Growth Area in Online Marketing.” In June 2008, comScore World Metrix reported a total worldwide social networking audience of 580 million persons. Today, Facebook alone claims 175 million active users (with some estimates going as high as 200 million), according to its promotion for Facebook Ads, which includes ways to target ads to particular demographic groups on the site.

Numerous business models are vying for the lead in capturing customers among the teeming memberships of the social networking services.

Ad serving technology companies (e.g., DoubleClick, Google Ad Server) provide software to Web sites and advertisers to serve ads, count them, choose ads that will make the most money, and monitor the progress of advertising campaigns.

Brand monitoring services (e.g., Radian6, Visible Technologies, Nielsen BuzzMetrics) monitor online dialogues to guard against attacks on client brands in the social-media sphere.

Profile data extraction and mapping services (e.g., Unbound Technologies) pull and analyze information about social network members in order to categorize, map and rank a brand’s social footprint while identifying key influencers (“super-customers”) within online affinity group social clusters for marketing outreach purposes.

There is one way to determine value in business models for monetizing the social networks, Unbound CEO Chase McMichael told CRM Buyer: “Are you enhancing clicks — advertisers pay their host only when their ad is clicked — or relationships?”

The challenge facing these and other companies is to prove that their business model offers just the right framework for creating economic value, just the right products and strategies for scaling revenue, and a high potential ROI (return on investment) despite the high risks.

Meanwhile, the demands for measurable results keep escalating.

Zuckerberg’s problem stems from Facebook’s anemic revenue per user (or page view), despite heavy site traffic. Not to worry, say those who believe they’ve found the formula for success that has eluded Facebook. Their message to Zuckerberg: Even f you can’t figure out how to get your members to become paying customers, we will.

Social Network Analyses and Social Graphs

For marketers, social networking services provide a promising venue for building a brand and attracting sales. Companies can set up a fan page on Facebook for a product or service and encourage interaction with people, displaying a genuine persona that prospects will come to trust. They can also pull member information from the sites and build databases around consumer demographic, psychographic, lifestyle and personality characteristics.

The challenge is in knowing just precisely where to market.

Enter social network analysis, which views social relationships in terms of nodes (individual actors within the networks) and ties (relationships between the actors). The resulting graph-based structures are often highly complex due to the many varieties of ties between the nodes.

A “micro” social graph is an online graphical (pictorial) representation or data map of a unique individual person’s identity and real-world network of activities and relationships. Analyzing a large set of these micro-graphs produces a macro-graph, based on second-degree connections. A macro social graph data map illustrates interconnections among people, groups and organizations in a social network.

Underpinning social network analysis is software used to identify, represent, analyze, visualize or simulate nodes and relationships. Metrics are executed based on network views, measuring what is mapped. The most popular network metrics include elements like density and cluster analysis.

Network analysis tools can be used in scholarly research, or for business purposes:

  • Conversational Marketing: The engagement of social media by a corporation to promote its product or brand. It differs from traditional forms of customer touch because the company may enter into an online dialogue that is stored publicly in a forum or blog.
  • Influencer Marketing: Focus is placed on specific key individuals rather than the target market as a whole. Individuals who have influence over potential buyers are identified, and marketing activities are oriented around them.
  • Affinity Group Marketing:: Targets existing groups of customers already interested in a certain product or service. Marketers can leverage relationships and the existing brand, loyalty, attention and buying power of the group. Here, the cluster is the basic unit of organization.
  • Word of Mouth Marketing (WOMM): Word of mouth (WOM) references the passing of information from person to person. WOMM encompasses a variety of subcategories, including buzz, blog, viral, grassroots, social media marketing (SMM), consumer-generated media (CGM), etc.

SaaS Marketing Automation

Marketing automation involves the use of software to automate marketing processes such as customer segmentation, customer data integration and campaign management.

In the Software as a Service (SaaS) distribution model, common business applications are hosted by a vendor or service provider and made available to customers over the Internet. Software and data are stored on remote servers.

SaaS marketing automation applications enable marketers to improve customer relationship management (CRM) and valuation to better see which customers the company should target in order to maximize profits. Some SaaS social network marketing vendors:

  • Lotame Solutions markets Crowd Control Technology, an analytics package designed to enable social media site publishers to research the site’s users and obtain a comprehensive view of user actions and interests (declared and demonstrated) in order to discover and leverage new marketing channels. For third-party advertisers and marketers, the software aggregates data to help locate, target and message the influencers inside social network communities.

    Lotame’s SaaS-delivered solutions are only available to publishing partners. Currently, Lotame generates revenue by enabling brand advertisers to reach targeted audiences with marketing campaigns using Crowd Control Technology.

    “We share advertising revenues with our publisher partners who help us develop the targeting data and provide us with media space to reach those targeted audiences,” founder and CEO Andy Monfried told CRM Buyer. “Every community that we work with is different and, therefore, requires slight variations to our solutions.”

  • Online ad company PopularMedia provides SaaS social media marketing solutions such as a standard banner ad that marketers can use as a blank slate on which to design their social ads to run on any Web site. PopularMedia works with advertisers and publishers on online ad campaigns to increase user engagement by wrapping standard online display advertising units with an interactive social media layer.

    PopularMedia’s Influencer Ads third-party social ad format, priced on a CPM usage model, is designed to enable brands to create social campaigns that can run on any Web site.

    “In social media, listening is key,” PopularMedia CEO Jim Calhoun told CRM Buyer. “Influencer Ads allow you to capture structured data for optimization, social segmentation and retargeting purposes.”

  • BuzzLogic, a social media analysis and advertising company, offers a SaaS dashboard to provide customers with insights into online conversations. The company utilizes a CPM advertising model to help top brands and agencies (e.g., Microsoft, MediaVest) access and target influential blog conversations from the dual perspectives of direct marketing and brand advertising.

    BuzzLogic’s secret sauce is an influence algorithm that takes more than a dozen factors into consideration when determining influence.

    “Our focus is around capturing influential pockets of conversation within rich Web content, understanding the readers’ intent and how they consume information across sites on the Web and follow links that hold these conversations,” BuzzLogic CEO Rob Crumpler told CRM Buyer. “We then leverage that insight to place advertising in the relevant and influential pockets of conversations.”

  • Sysomos is a SaaS provider that delivers real-time conversation monitoring of social networks, blogs, microblogging services, wikis, message boards, video sharing sites and news sources. Customers access the service through a Web browser. Sysomos generates revenue through monthly and annual subscriptions.

    “The most important issue regarding the monetization of social media networks is delivering advertising and services that are relevant and valuable to users,” Sysomos CEO Nick Koudas told CRM Buyer. “Social media services are personal in nature as opposed to transactional, so it’s important that advertising be contextual rather than obtrusive.”

  • Colligent is a social network research firm that provides hosted software (soon to be a Web-based application) based on the Amazon Elastic Compute Cloud (Amazon EC2) development platform.

    Colligent’s business model is “productized analysis and research,” according to Sree Nagarajan, founder, president and CEO. Pricing is custom tailored to each client, who subscribes on a monthly basis and can stop any time.

    “We see the social networks as a research medium, not as a marketing medium,” Nagarajan told CRM Buyer.

    Colligent created a massive database by harvesting information from publicly available records of people belonging to various social networks.

    Nagarajan compares Colligent’s offering to Nielsen Media Research’s Nielsen Ratings, the system used to gauge U.S. television viewing habits.

    “We’re at one-tenth the cost of Nielsen,” he said. “We measure effectiveness — they measure exposure.”

Making Social Networks Pay, Part 2: Players and Products

Making Social Networks Pay, Part 3: An Eye on Privacy

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