Social Networks & Business Models

Last week at a conference in New York City, the head of Fox Interactive Media, Ross Levinsohn, told the audience:

“More mainstream marketing on MySpace will be kept to the “well-lit” areas of the site, like the Books, Comedy, Film, and Games sections rather than on individual profile pages, which have less strict content controls–something many advertisers have expressed concerns about.” “We want to make it easier for marketers to work with us,” Levinsohn said.

I like the way Scott Karp reacted to the announcement when he wrote, “Sounds more like advertising will be roped off away from the action, like protesters at a Bush rally.” Heh.. funny! My reaction was similarly skeptical, because it seems that a traditional media mind set might be nudging them (FIM) in the wrong direction.

As most now realize, the fundamental problem that social networks face when trying to monetize through an advertising-driven business model is the lack of trust.  To be more explicit, while brand advertisers have historically trusted people as consumers, they do not trust them in the new role of producer (e.g. uncontrollable content).  Likewise, people who are armed with the power of interactivity are also demonstrating that they are increasingly distrustful of brand advertisers (e.g. ad-skipping).

In many ways, social networks today, at their current stage of evolution, are much like the currencies of underdeveloped nations… or countries that are politically unstable.  In such circumstances, governments must do all they can to create and engender trust among its nation’s constituents and institutions. After all, what is money without the people’s trust… it’s just a devalued piece of worthless paper.

MySpace, and thus other social networks, are in a similar predicament. MySpace in particular, needs to be a catalyst for trust among its users and advertisers.  While taking a strategy of segregation (e.g. “roping off” brand-safe areas) might satisfy conservative advertisers and yield some dollars in the short term, such efforts will actually serve to undermine and limit the long-term viability of its business model by further exacerbating the distrust between users and advertisers.  Instead, what MySpace needs to do is to tackle the problem head-on by launching programs that ultimately create new levels of trust between its constituents where none existed before.

Given that broad, high-altitude view, let me now zoom in by proposing a specific program idea along the lines of what I’m talking about. Whether the idea, in and of itself, has any merit is not the point here; the objective is to demonstrate a direction that exemplifies how trust can be created between users and advertisers.

Imagine the following scenario:

A teenage girl is checking her MySpace profile. She notices a new video ad for Old Navy on her page. But this particular ad jumps out at her because she immediately notices that the person in the ad is actually someone from her high school!! Without hesitation, she hits the “play” button and watches her friend talking and dancing, while modeling Old Navy’s new line of Madras casual wear. The ad seems homegrown in some ways, yet professional overall… a feel that was intentionally designed into the creative execution by Old Navy’s ad agency. Excited, she notices that her cousin (who’s attending college) is online so she IMs her to describe the ad she just saw. Her cousin IMs back to say that she saw the exact same Old Navy ad on her own MySpace page earlier, but in her case, the girl in the ad was someone she knew at her college.

Now, let’s step back and digest the implications of what just happened. In a broad sense, this type of program is no different than what advertisers do when they sign-up mega-celebrities (e.g. Catherine Zeta-Jones and T-Mobile) or superstar athletes (e.g. David Beckham and Motorola) as spokespeople for ad campaigns or for product endorsement deals. When it comes to advertising in mass media, a big name is required since such campaigns are only effective if the viewer already knows who that celebrity is. But in a social network, micro-celebrities who are well known within their network of micro-communities could prove just as effective and potentially even more so, particularly if such campaigns are able to generate buzz, excitement and a cool-factor.

As for MySpace’s role in all this, they are in the unique position to know better than anyone (as the owner of the platform with all the user data) who the “brand-safe” users are within its network.

Thus MySpace can effectively play the role of talent agent by aggregating a list of users who would be appropriate for advertisers within various categories. In fact, the incentive “to be discovered” is likely to spur many users to express themselves in a manner that will position them favorably for consideration. The result is a win for everyone involved.

By enabling advertisers to partner with users, this is the type of program that would create trust between the parties. This trust, multiplied by the number of ad campaigns and the users enlisted, could then be propagated throughout the entire social network in a manner that is completely native to the medium itself. In this vein, it’s worth noting that a campaign like this cannot be implemented efficiently or cost-effectively in any form of mass media.

Remember, social networks are a new medium for self-expression and, unlike traditional media, the content is being produced and owned by the audience itself. This is a new model that requires new rules… and for advertising, the most important rule is to launch programs that integrate users and advertisers, not segregate them. By aligning their interests, trust will be created and social networks will be able to offer advertisers, and users, benefits that are truly unique to the new medium.

So as is the case with money, trust will enable social networks to develop business models with sustainable value.

(originally posted at http://gigaom.com/2006/06/19/of-social-networks-and-business-models/)