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.