Social Media's Advertising Revolution

How Facebook Will Upend Advertising

With social networks like Facebook transforming the way companies communicate with consumers, it's time for the ad industry to get its head out of the sand

Excerpted from 5/27/09 BusinessWeek article by Jonathan L. Yarmis

The guessing games over Facebook's worth are back on again. They were reignited by the news on May 26 that Facebook has accepted a $200 million investment that values the company at $10 billion.

Much of the discussion centers on the ability, or lack thereof, of Facebook and other social networks to sell advertising and deliver advertising results.

But that argument misses the point. The question isn't how advertising will work on Facebook but rather how Facebook and social networks like News Corp.'s (NWS) MySpace are changing advertising.

The Holy Grail of ads: word of mouth

...We're on the verge of a major rethinking of advertising's fundamental premises. One of the biggest challenges facing advertisers is ad credibility.

...Word of mouth—peer opinion—has consistently been rated the most credible source of information. But traditionally there's been a limit as to how widely you could distribute a friend's point of view.

Credibility now has a channel for mass distribution. It's called the Web and it particularly thrives in social networks. Such distribution will have profound implications for how we "advertise."

...Social tools woven into various sites can deliver the opinions and reviews of a group—"people like me"—whose views may be just as credible as those of my friends.

In sum, social networks and related tools are transforming the way companies communicate with consumers and potential consumers in profoundly interesting ways.

Now it's up to the advertising industry to get its collective head out of the sand and exploit this transformation to its advantage.

Jonathan Yarmis is founder and principal analyst with the Yarmis Group, an independent analyst group.

My Take

Advertisers will look back wondering why it took so long to see the obvious - instead of hindering their prospective customers' Web experience with annoying ads, they should use social Web tools to derive actual value from the ads' results.

The Search for Local Search

How to Solve Local Search, Once And For All
by Matt Greitzer, Friday, May 22, 2009, 10:46 AM

Excerpted:
There is no way to find a good plumber or electrician in New York City. I can find a plumber, any plumber, no problem. My Google query for "New York City Plumbers," for example, returned 14,700,000 results. (How is that even possible)? But finding a good plumber, one who will show up on time and provide an estimate with fewer than five digits, can't be done.

This is where I thought I would start writing about Facebook, and the opportunity has to corner the local search and services market. No one out there is doing this well -- not the major engines, not the IYPs, not even the new(er) social search and recommendation engines like FacebookYelp.

The problem with local search is not in getting accurate listings, that's easy. The challenge is in getting relevant reviews on those listings. In order to do this, you need two key ingredients.

The first is scale, as in a massive, active user base willing to inform objective business listing with subjective opinions.
The second is relevance, as in some way to ensure the reviews you are reading are not written by shills, angry ex-lovers, or crazy people.

Facebook can address both of these challenges: It has a massive user base, and it's networked, which provides all kinds of useful ways to vet the trustworthiness of a reviewer's opinion. If Facebook jumped into the local search space I believe they could corner the market. But I think Yelp has actually beaten them to it.

I was going to put Yelp in my original column as an also-ran. My original thoughts were that Yelp did not have the scale to capture this opportunity. It was in digging around on Yelp looking for examples to prove my point that I realized I'd misjudged it. Yelp does have scale. Though not nearly that of Facebook, Yelp has almost 8 million monthly unique users (according to comScore), and has doubled its user base over the last year.

Facebook should not build its own socially powered local search engine; it should just buy Yelp. This combination makes both companies better. It would instantly propel Facebook into the local search space with the backing of an active reviewer base and a proven service model. And Facebook's scale would rocket Yelp from niche to mainstream, making a good service even better by combining reviewer opinions with vetting via the social graph.

My Take

This article addresses the exact problem that led us to design YouGottaCall.

In researching our patent, it amazed us that no one had tapped into the actual value of local word-of-mouth referrals through a Web-based social network.

Our revenue model is quite different than Yelp's or Facebook's - it allows consumers to find and share the businesses trusted by their neighbors and friends. Businesses voluntarily reward their social network for referrals that result in new customers. The members' favorite charities benefit!

It is working well in our test market -I'll be glad to keep you posted on our Facebook integration and e-commerce back-end development.

One parting question - if you combine two social networks - neither of which have an intrinsic revenue model - guess what you're still missing. An intrinsic revenue model.

HBJ: Social Network Primer

Social Networks For Your Business

by Rhonda Abrams as published in the Hartford Business Journal 5/25/2009

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Excerpt:
In the last few years, an avalanche of new opportunities has cascaded on the Internet in the form of social networking sites. Advantages and limitations of social networking sites:

Advantages:

• Connect with lots of new people, just as with real-life networking.

• Get the word out without an intermediary, such as a pesky reporter or columnist!

• Establish yourself as an expert in a field.

• Stay on top of your field and your competitors.

• Connect with your own customers.

Limitations:

• Can consume a huge amount of time.

• Most connections will never convert to paying clients or customers.

• A zillion of your competitors are out there.

Managing your social networking visibility can be a full-time job — in fact, many companies employ people just to be doing that. But you have a business to run.

So here’s Rhonda’s guide to social networking sites as they relate to your small business.

Twitter: Twitter’s the Internet darling of the moment, allowing users to send very short messages (limited to 140 characters) known as “tweets.” For example, you could choose to “follow” me by searching for Rhonda Abrams. (Twitter doesn’t allow spaces so my Twitter name is RhondaAbrams). I “tweet” about things I think small-business owners would find interesting or sometimes amusing.

LinkedIn: Unlike all the other major social networking sites, LinkedIn is dedicated to helping people connect for business rather than social purposes. It’s also become a major source for posting professional job openings.

Facebook: The heavyweight of social networking in the U.S., Facebook is great for keeping in touch with people you care about and finding people you’re out of touch with.

MySpace: Once the leading social networking site, it’s still a huge draw, especially for teenagers.

YouTube: This site is all about videos, so you may think it has nothing to do with business. But businesses have discovered it’s a great way to provide information to prospects and customers. Why not take some video of the products you sell or of you describing your services (or video testimonials) and easily upload them to YouTube? Then, you can direct prospects to YouTube to check it out.

One thing’s for sure: social networking is here to stay. Most businesses will need to know how to use it.

Rhonda Abrams is the author of “Six-Week Start-Up” and “What Business Should I Start?”

My Take

In her full article, Rhonda points out there is an overwhelming amount of sites to keep up with. This "avalanche" has busy business owners saying, "My time is too valuable to chase these sites. Why should I even try?"

My answer to this is, "Because it's the only way to grow. You're facing a technology revolution tax - not levied by a government, but by a rapidly spreading change in the way your customers communicate."

"Right now you're building a new bridge to connect with customers in a whole new, better way. But meanwhile you're maintaining your old bridge with your traditional advertising. So you're paying double - for a while at least.

The added expense in time & money will be a strain on you. But the dividends will come - especially for those businesses who "get it" and are adept at melding social media into their ad mix.

Food, Folks & Web Talk

Nice breakfast meeting this AM...

'Met with the Web Presence Discussion in Windsor this morning at the Windsor 75 Diner. Kevin Andle of www.KAndleConsulting.com is helpful and informative on all things Web and Social Media related.

The crowd was friendly, curious and talkative with various levels of comfort with the Internet. They had lots of good questions on using YouGottaCall.com to generate WOM referrals.

Overall I'd recommend Kevin and this bi-weekly gathering for any central CT based business who wants to learn how to use the Web to drive profits. (He is not nearly as "adamant" as he appears in this picture :-)

My Take: SEO - Are You Cha$ing Your Tail?

The dog chasing its tail may catch it momentarily - but tires itself out in the process.

Search Engine Optimization is like the whirling dog - exhaustive activity to get momentary placement in search results.

Local business advertiser have three problems with this:

1. Accepting unfavorable terms of competition - the premise of SEO is quantity - how many times your name appears on a monitor - not quality. You are surrendering your best competitive weapon - your reputation - when you elect to slug it out against competitors' SEO ad budgets. Your sales leads are now determined by how much you spend, not how good you are.

2. Continual, fixed expense - no guaranteed results. If you stop SEO spending for a moment your competitors immediately push you down in the rankings. Result: you are no longer found even though you provide better quality. You're addicted to spending - and it's a tough habit to break.

3. Low return - your best customers are not found through search. Would you prefer to spend time landing a customer who'd never heard of you before? Or one who came recommended? Customers with the greatest lifetime value are those who refer their friends and neighbors. And you get most of these via word-of-mouth referrals.

As Andy Sernovitz says, "Advertising is the price of being boring." I'll add that "SEO is a hefty sales tax."

Image credit http://www.softwaremag.com/archive/2001feb/images/ChasingItsTail.jpeg

Great Local WOM Data From BuzFactor

Majority of businesses get more than half their customers from word of mouth

May 21st, 2009 (Excerpted from www.buzfactor.com)

92% of the companies surveyed said customer word of mouth was very important to their businesses’ success. Survey of over 200 retail and restaurant owners and managers - almost two-thirds of these businesses said word of mouth was responsible for generating over half their new customers and, among smaller businesses, the impact was even more pronounced with 75% acquiring the majority of their customers through word of mouth.

Compared to other forms of marketing, 70% of businesses said word of mouth had the most impact on the success of their business (3 times more than online and email marketing and 10 times more than print).

However, 40% of these companies do not currently allocate ANY of their marketing budget to word of mouth and, of those that do, the vast majority (71%) dedicate less than 10% of their marketing budget on word of mouth. Interestingly, less than 10% of companies said budgetary concerns were the primary reason for the lack of investment in word of mouth marketing initiatives.

My Take

Powerful data. This reminds me of slide #22 from this presentation on "Building Sales With Social Media".

'Raises the question - what is the actual value of word-of-mouth for the millions of small, local US businesses?

Businesses need a simple way to use the Web to connect with this river of WOM advertising.

About Buzfactor

Buzfactor of Blacksburg, VA was founded by Ron Butman in May of 2009. Butman holds seven technology patents and has founded two other technology companies.

Butman says he began Buzfactor, "to take advantage of what I perceive as one of the more significant opportunities - the formation of consumer marketing networks that leverage the social relationships between customers to increase sales far more effectively than traditional advertising. "

Read more about Buzfactor.

Why Pay for Local Advertising?

My Take on Lisa Barone's "A Great Product Needs No Advertising"

Excerpt from 05/14/2009 blog

Not all blogs are broken. Some still get it. They get it hard and consistently. Like Andy Sernovitz. Andy says that advertising is the price of being boring, explaining:

“…There is a direct relationship between being buzzworthy — earning word of mouth — and how much you’ll have to pay to promote yourself through paid marketing.”

If you *get* one thing today, get that. It’s a lot easier to market a great product than a mediocre one. Because great products don’t need to be advertised, they just are...

Instead, save your marketing cash and invest it in the core product. And yes, I just did tell you to save your dollars on marketing and actually use it for product development.

My Take
Ask anyone who's recently hired a contractor, dentist, or other local business, and you'll find that 80% found them via word-of-mouth. That's a lot.

The businesses receiving these referrals have earned them. Why? Because of their clever, well-placed ads? No - because of their quality.

By effectively facilitating WOM via social media, the most deserving (read "highest quality") local businesses can create a recurring stream of WOM referrals with zero advertising expense.

The emerging power of Web 3.0 will revolutionize the $100 B US local advertising market.

Fastest Growth in Web Search: It's "Local" by a Mile

Growth of local search outpacing regular search

According to new figures from comScore, the use of search tools to find local businesses, products or services grew 58% last year to reach an annual total of 15.7 billion searches.

by Helen Leggatt

By comparison, overall U.S. Internet searches grew just 21% to around 137 billion in 2008.

The data shows that more and more Internet users are logging on to find local businesses, potentially driven by the increase in use of mobile Internet and the availability of Google Maps.

Interestingly, when keywords for searches on Yellow Pages were analyzed, it showed that three-quarters of the top 100 keywords were non-branded, indicating that searchers did not have a specific brand in mind at the time of the search.

(read more)

My Take

This enormous growth rate demonstrates the need consumers feel for improved means of finding local businesses. Older methods (classifieds, print Yellow Pages) aren't cutting it.

The question is, what new, social tools will enable consumers to not only locate businesses, but to connect with those businesses trusted by their network of neighbors, relatives, co-workers and friends.

That'll be the Holy Grail - for consumers as well as businesses.

The Crowd Knows - Good article on "A List Apart"

The Wisdom of Community

by Derek Powazek

Excerpts:

The web, with its low barrier to entry and permeable social boundaries, is the ultimate medium through which to explore the finer points of the wisdom of crowds.

You need a few things to enable online crowds to be wise.

Simplicity

Systems based on the Wisdom of Crowds can tackle surprisingly complicated projects, but each project must first be broken down to its simplest possible components.

Aggregation

One of the reasons discussions do not lead to wise results is that there’s no aggregation—the conversation just happens. But WOC systems are there to produce a result. This requires an aggregator (like you) and an algorithm.

Participation

A defining element of any WOC system is that the more participants it has, the better it gets. Discussion systems and chat rooms fall apart when too many voices get involved. If your community feature gets worse the more people use it, it’s not a WOC system.

Selfishness

It’s counter-intuitive, but the wisest crowds are the ones made up of individuals who are thinking about their own needs, not the needs of the group.

Leaderboards

Leaderboards create a problem for Wisdom of Crowds systems. How you display the wisdom of your crowd can be as important as how you ask for it in the first place.

Explicit vs. implicit feedback

In working on your own WOC systems, pay attention to when you can glean implicit feedback without having to ask for it directly.

Wiser together than we would be alone

These aspects of the Wisdom of Crowds are just the start — there’s a lot more to learn. WOC systems must evolve: you’re never done. But done right, they can change the way we live online, and maybe make us all a little wiser.

About the Author

Named one of the top 40 "Industry Influencers" of 2007 by Folio Magazine, Derek Powazek has worked the web since 1995 at pioneering sites like HotWired, Blogger, and Technorati. He is the author of Design for Community: The Art of Connecting Real People in Virtual Places (New Riders, 2001). Derek now splits his time between working as a consultant for HP Labs on MagCloud and editing Fray, the quarterly book of true stories and original art. Derek lives in San Francisco with his wife, two nutty Chihuahuas, a grumpy cat, and a house full of plants named Fred.

My Take

These natural principles hold for all types of crowds. Social media can become more effective at harnessing crowd wisdom by being adept at observing nature and being humble enough to mimic it.