Long before social networks started becoming the new portal, the primary communication tools (email, chat) of portals struggled to monetize users. But, services like Hotmail, Yahoo Mail, Gmail offer a sticky service that keeps users coming back over and over again. $.25 CPMs for domestic traffic may be considered pretty good in these environments which is similar to what social networks earn today. The value in the communication service is the ability to offer high value editorial content to the huge audiences these services attract. Think of email as a funnel and the programming around it as a science to heard users into high value context like search, financial tools, shopping, and researching cars.

Social networks are largely communication platforms that are similar to email. My belief, the key to monetize the users and increase the value of the visitor is to create context around the actions beyond communicating (email). This is where advertisers will pay premium CPMs and where applications built on top of the social networks have huge opportunities to create experiences with valuable context.

The next thing social networks need to realize is that they have the opportunity to control the “start” experience of an internet visitor. This means becoming the homepage for every visitor. There are three hugely valuable things that happen when you become the starting point at scale. One is the ability to direct traffic at scale via editorial programming. This needs to be done at a personalized level, but will still offer scale in reach to advertisers. The second thing is the massive scale that advertisers get when they purchase ads like on the homepage of Yahoo or MSN. There aren’t many places this reach can be purchased and it’s expensive inventory that is sold out quickly. Lastly is search. As social networking sites get better at combining social search with general search this will lead in a shift from people heading to Google to people searching within the social networks. By making search a more prominent feature, this will lead to dramatic increases in monetization.

-From CEO, Paul Edmondson’s blog, trainthoughts.com

This entry was posted on Friday, May 16th, 2008 at 1:52 pm and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.