Socnet Advertising, where art thou?

Giff Constable social media, virtual goods

A few months ago, I listened to a panel organized by Battery Ventures called “Monetizing Social Media”.  Perhaps not surprisingly for a New York-based event, the panel spent 99% of the time talking about advertising.  Still, I was surprised to see both the Facebook and MySpace representatives brush off microtransaction business models as niche and not worth discussing.

The total advertising market is certainly much bigger than virtual goods, so I can understand why they keep trying to capture ad spend dollars, but when you look at companies like Tencent and watch the rapid growth of micro-transaction based apps, the dependence on advertising starts to feel a bit like wearing blinders.  However, notwithstanding the panelists statements, both MySpace and Facebook seem to be working on virtual currency strategies, and they are smart to diversify since ad dollars still aren’t racing their way.

eMarketer now forecasts that advertising in online social networks is going to fall 3% in 2009, although they do think it will recover in 2010 and grow 10% above the 2008 levels.


After pouring so much effort into advertising, will they understand enough about virtual goods to capitalize on the new model? That remains to be seen. Facebook’s neglect of its gift system has not been a good sign, but perhaps times are a-changing.

The point is not that micro-transactions are the new savior to socnets.  Advertising will be an important revenue source.  However, as the music industry is learning, diversification of revenue streams is the name of the game.