Turning social network traffic into dollars

Sites like MySpace and Facebook have made progress with some advertisers by the sheer magnitude of their traffic and audience. But it's a work in progress, given advertisers' reluctance to associate their brands with sometimes-inappropriate user material.

New technologies are on the horizon now to help social networks appeal to these discerning advertisers.

RelevanceNow, for example, is an Australian start-up with a technology it calls "social intelligence," an analytics tool that can size up members of a community via their so-called psychographics, which classify people's attitudes and values, likes and dislikes. With the technology, a social network could segment groups of people based on details they've divulged in member profiles or blogs. The network then could target an advertisement appropriate for a specific group. The technology also could help identify people in the network with certain needs--vulnerable teenagers, for example--and then be used to invite those teens to a group on building confidence.

"Social intelligence understands users' interests even if they don't explicitly say (what they are)," said RelevanceNow CEO John Zakos, who previously helped develop search technology at the company Mooter.

This is no easy trick. On social networks like MySpace only a fraction of their millions of members participate in affinity groups, such as those that cater to motocross fans or sushi lovers, groups which could make it easier to target ads. But if the technology works as intended, a site might, for example, show an ad for a local sushi restaurant to a member of the sushi-lovers' group.

Such targeted ads typically garner higher responses from their intended audiences, and thus cost the advertiser more money. As it is now, general site-wide banner ads can dominate social networks, and those banners typically sell for lower rates.

"Those guys are getting such low CPMs (cost per thousand ads)--that's true of Friendster, MySpace and Tribe," said Paul Martino, the founding chief technology officer of Tribe.net He left to found a new ad-targeting company, Aggregate Knowledge, in 2005. "Not many advertisers want to be up on user-generated sites, because it's not where they want their brands to be. Having these affinity-based matches might be a way to bring in advertisers who are leery of social networks."

MySpace's hefty take
Still, MySpace, as the giant of social networking and one of the top five most-trafficked sites online, seems to be holding its own in the ad marketplace, drawing movie and food marketers that want to appeal to younger generations. MySpace commanded almost 15 percent of the estimated share of image-based advertisements sold online in September (not including sponsored links or search ads), according to Nielsen NetRatings' AdRelevance. That was up from roughly 7 percent in September a year ago.

Nielsen doesn't estimate sales figures, and MySpace parent company News Corp. does not break out advertising revenue for the social network.

MySpace has also increased sales of customized advertiser profiles for companies like Wendy's and Burger King. These profiles often feature fictional, company-created characters whose age, likes, dislikes and personalities fit in with those of prospective customers. In one example, a company-created member profile for "The King"--a character featured in Burger King ads--can sell for anywhere between $500,000 and $1 million, according to a company spokesperson.

Such advertiser profiles could get more sophisticated, too, with technology from RelevanceNow. The privately held company makes so-called chat-bot technology that could be used to create specialized virtual characters with which fans can have an instant message conversation. The technology platform, which it calls My Cybertwin, includes a number of set personality profiles, like "cheeky" or "happy," that RelevanceNow can customize into a character or corporate mascot. For example, it could create a Bart Simpson character that fans could chat with online.

MySpace could ultimately charge more for a corporate page by creating an embedded IM application for a character like Wolverine from "X-Men."

MySpace appears to be considering the idea. "We haven't offered one to date, but we have the capabilities and will explore the opportunity with clients in the future," said Ann Burkart, a MySpace spokeswoman.

RelevanceNow said it is in talks with more than one major social network in the United States and Australia, and its social intelligence technology is being used by several such networks already. Zakos did not divulge partnerships because of nondisclosure agreements.

Targeting practice Targeting online visitors can be difficult, too, if the audience isn't big enough. The challenge is to aggregate enough members and ad inventory to make it worthwhile for advertisers to buy.

Aggregate Knowledge in Palo Alto, Calif., which is still in stealth mode and is backed by Google investor Kleiner Perkins Caufield & Byers, may also have an ad solution for social networks. Aggregate's founder, Paul Martino, discovered a technique for classifying affinity groups when he worked as CTO of Tribe.net, and has been developing the idea at Aggregate.

Aggregate has developed algorithms to determine what are called "affinity clusters" of people and, based on the personality profiles of those people, targets ads. It does this not by analyzing an individual's habits, but by looking at people's habits in aggregate. So if a group of people visit the sushi forum on Yahoo Groups, then go to Open Table to make a reservation, then turn to MySpace to talk about the experience at the restaurant, Aggregate has a general personality profile of that group, and can cluster people into it and target ads based on the affinity.

"We get around issues of scale," said Martino. "There are hundreds of other ways to skin a cat."

Portals such as Yahoo and MSN appear to be best positioned to sell targeted advertising in their social networks with technology that helps them analyze hundreds of millions of users based on demographics, psychographics and even time of day. What's more, they have the advantage of being able to analyze the habits of people across Yahoo and MSN's multiple properties, such as those devoted to finance and to sports, to garner more ad-targeting data. But their nascent communities--Yahoo 360 and MSN Windows Live Spaces--have yet to make a splash like others.

"It would be a technology challenge for newer (social networks)," said Wenda Millard, chief sales officer of Yahoo. "Not for us; we have such a huge platform, and we've been in the targeting business for such a long time."

MSN and Yahoo have experience selling corporate-mascot "chat bots," too. MSN, for example, offered a "Billy Bones" pirate character via IM that fans of the film "Pirates of the Carribean" could add as a buddy and chat with.

For this reason, Facebook teamed with MSN in September to sell Facebook's graphical ad inventory.

Earlier this year, MySpace also inked a deal with Google to display MySpace text advertising targeted to content on the page. That deal, according to a source, is about Google attempting to understand how to drive up ad response in social networks because revenue sharing terms, in this case, were not favorable to the search giant.

"Before we see sophisticated databases that are applying social mapping to ad display and selection, we'll see something much more basic, like funneling people into channels that advertisers already understand how to buy," said Mark Pincus, chairman and cofounder of social network Tribe.net.