Exec: Ad industry must think small to tap social sites

NEW YORK--"Social media is killing Internet advertising," said Seth Goldstein, co-founder and CEO of SocialMedia Networks, as a roomful of ad-industry types at midtown Manhattan's Roosevelt Hotel put down their BlackBerrys and pulled out their pens and notebooks.

They were eager to hear Goldstein, whose keynote kicked off Monday's User-Generated Content and Social Media conference organized by the Interactive Advertising Bureau's IAB Leadership Forum. That's because nobody in the ad industry has figured out how to turn the social-networking craze into a real moneymaker. Silicon Valley-based SocialMedia, an ad network that touts itself as a company "creating new ways for advertising to work within social media," is one of the start-ups that says it has the answers.

In a presentation full of classic TV clips and quotes from Facebook founder Mark Zuckerberg, Goldstein said that traditional advertising strategies--yes, including those from the earlier days of the Internet--just don't apply anymore.

"People started to become more interested in each other and less interested in the ads," he said, displaying a chart revealing that click-through rates on display ads have been tanking. In the world of social media, "you can't stand on the sidelines and put up a big banner and say, 'Click me.'"

He referred to Facebook platform manager Dave Morin, who insists (as paraphrased by Goldstein), that "you have to provide, easily, a social context on everything you do," when it comes to Facebook. Putting a Madison Avenue spin on it, Goldstein said that "the challenge is for advertisers: How do you do the same thing?"

The bigger picture
Display ads on social networks make about 5 cents per click. Within social applications, it's more like 10 cents to 80 cents, Goldstein estimated. But he, and plenty of others in the ad business, want to keep moving. "As an industry, we have to march beyond a dollar CPM," he said, referring to the term for cost per thousand.

Goldstein didn't talk much in the way of concrete answers for the ad industry. (After all, that's what he gets paid to do.) But he gave some hints: the solutions include uber-targeting along the lines of Facebook's Social Ads, "brand lift" from "trusted referrals," and capitalizing on the social application craze by creating "appvertisements" and sponsoring existing apps like SuperPoke or Food Fight.

He acknowledged that plenty of the popular applications on social platforms are pretty silly. "They're not important because the content is serious; they're not important because they're high-utility; they're important because people are spending an ungodly amount of time using them."

Sure, but that'll change if people start getting sick of throwing pregnancy tests at their friends.

He added that while individual applications may fade away (can Zombie Bites please disappear already?), the developer platform is here to stay.

"I would think about applications like songs. You rarely have a song that's popular forever, but you have bands that are popular and singers that are popular for a long time," Goldstein said. "We have 5,000 applications in our network and about a thousand developers across the world. The best developers are constantly making applications."

Rehashing Beacon
When asked about challenges facing the industry, Goldstein talked unsurprisingly about Beacon, Facebook's ill-fated advertising program. "You have to be really mindful of privacy. Obviously, Beacon was a setback, not just for Facebook but for the industry." He described the program as "pioneering," but acknowledged that user backlash and bad press and PR caused it to be seen as an invasion of privacy. "The ability for people to share their commercial experiences across networks is a powerful one," he said.

SocialMedia will be releasing a product in a few weeks called "Social Banners," designed to make ads "more like trusted recommendations and endorsements than simply display ads."

Overall, his message is that the ad industry must start thinking smaller, down to the individual consumer. "People are talking to each other and they're having lots of little conversations, and so advertising needs to become small like that," he explained. "I don't think any one thing is going to improve your life, but I think lots of little things will."

Goldstein added that he and his wife originally bought the domain Socialmedia.com when they came to the realization several years ago that the media industry was growing more social.

"It's been great to have that domain recently," he riffed.