Everything But the money

Social Network Users Less Receptive To Advertising – IDC
by: Jerry Liao

Social networking sites are considered one of the most if not the most visited websites nowadays. People from all walks of life will have their own pages at Friendster, MySpace, Facebook and others. Coupled that with their friends who has their own pages as well — the traffic would really be enormous.

And when you talk about web traffic, online advertising will definitely be around the corner. Does it automatically follow that huge online traffic is equivalent to effective online advertising? The answer can be found in this latest survey released by IDC.

Although the survey was done in the U.S., it will still somehow give us an indication of how effective online advertising is. The Internet crossed all boundaries, classes and signaled the death of distance right? Here’s the IDC survey:

More than half of U.S. consumers with Internet access use social networking services (SNS), such as Facebook and MySpace, and penetration will continue to grow. According to a new study from IDC, consumers are also spending ever-greater amounts of time on SNS, a fact that has advertisers drooling over the opportunity represented by SNS.

IDC found that consumers who use SNS also tend to visit the services often and spend a lot of time per visit. More than three quarters of SNS users visit at least once a week, and no less than 57% visit at least once a day. During each session, 61% of SNS users spend at least 30 minutes on the respective site or stay logged in permanently, and 38% spend at least one full hour per session (or stay logged in).

There are four major reasons why consumers use SNS: to connect and communicate; in response to peer-pressure; for entertainment; and for work-related purposes. Advertising does not factor into consumer motivations. In fact, users are less tolerant of SNA advertising than the best tolerated forms of online advertising. Ads on SNS have lower click-through rates than traditional online ads (on the Web at large, 79% of all users clicked on at least one ad in the past year, whereas only 57% of SNS users did), and they also lead to fewer purchases (Web: 23%; SNS 11%).

“The thinking has been that the popularity of SNS will attract a big audience and generate a lot of traffic, which in turn will produce enormous amounts of user-generated content (UGC) and therefore advertising inventory – without any expenses for editorial staff or content distribution deals,” said Karsten Weide, program director, Digital Marketplace: Media and Advertising. “All of the above has proven true – except that almost invariably, SNS have had a hard time selling this inventory.”

One of the potential benefits of SNS that the advertising industry has discussed is whether peoples’ connections (i.e., whom a user knows or is linked to) could be used for advertising. For instance, publishers could show a car manufacturer’s ads to a user’s contacts because that user’s online behavior has indicated that she is interested in a particular brand of cars. Anecdotally, there has been some indication that this “social advertising” might be more effective than behavioral targeting. However, that idea is stillborn. Of all U.S. Internet users, only 3% would allow publishers to use contact information for advertising.

IDC expects that lower-than-average ad effectiveness on SNS will continue to contribute to slow ad sales unless publishers get users to do something beyond just communicating with others. If the major services succeed in doing so, they will become more like portals, such as Yahoo! or MSN, and they will come closer to the audience reach of the top services. If that happened, publishers would be better able to monetize their SNS.

Despite the report, companies should not totally abandon their online advertising plans. The challenge is to be able to determine where and how to advertise online. Based on the survey result, web traffic is not as an effective indicator as everyone thought it would be.

Comparing it to the real world, there could be a huge crowd (unique visitors) inside a mall, there could be a lot of people touching products in shops (page views) — but at the end of the day what will count is how many people actually bought the products. The purchasing power of the consumers is still the main consideration here.

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