synecdochic (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
synecdochic) wrote2008-07-20 05:52 am
synecdochic) wrote2008-07-20 05:52 am
Why Monetizing Social Media Through Advertising Is Doomed To Failure (part three)
Friday we did part one of Why Monetizing Social Media Through Advertising Is Doomed To Failure: definitions, history, and background. Last night, we did part two: market forces and how they affect a social media service's operations. Again, I'd like to encourage you to read those two posts first; they lay out my premises and background information.
This morning, we're going to talk about how these market forces affect the users of a social media service, and reach my conclusion: that advertising will never work on social media as a sustainable revenue-generating strategy.
(Again, worth reiterating for those in the industry: I'm writing for a layperson, and there are lots of points I'm simplifying.)
The recap
Social media services that have fiduciary duty to outside investors, and social media services that are looking to sell to someone else before the bubble bursts, are looking to make significant profits above and beyond their operating costs, in order to appear more attractive. Most of these sites have chosen advertising as a form of capitalizing on the 90% of site visitors who never contribute and the 9% of site visitors who only contribute occasionally.
Advertising on social media, as it exists right now, is under-performing. Adblock, banner blindness, and the fact that people don't come to social media services in a frame of mind to buy things all contribute to a poor rate of return. Companies, when faced with under-performing advertising, put more and more of their effort into making their advertising perform better.
"Web 2.0", as a concept, is built on the notion of user-generated content. A service isn't selling their own content; they're selling you a home for your content, and selling other people the ability to look at your content.
Sites have two possible sources of revenue: active revenue, or the revenue that users of their site have consciously chosen to give them (subscription revenue), and passive revenue, or the revenue that they acquire from others based on the activity of their users (generally, advertising revenue).
With me so far? Okay, here we go.
Social network vs. social media
I left off yesterday saying:
This is a critical distinction, and in order to understand how this affects the users of social media sites, we need to define the difference between 'social networking site' and 'social media site', because that difference makes a big difference in the social economy of the service.
The two terms are not interchangeable, ultimately. Social networking seeks to (for the most part) replicate a person's existing social web (think of sites like Classmates.com and LinkedIn.com); its purpose is to define your ties with others. Social media takes that one step further: it seeks to create and nurture social ties to others, through the content that you provide.
If you think of a site as a game, the "winning conditions" of the game will be a good clue as to whether the site is a social networking site or a social media site. If you win the game when you collect all of your existing friends, or collect as many new friends as possible, you're on a social network. If you win the game when you provide content that's interesting enough to get other people to build relationships with you, when your social currency is the content you provide, you're on a social media site.
These are very, very, very hard terms to define empirically and not by example -- especially since most sites combine elements of both. Let's try for an example, in the hopes it might help anyone who's confused: MySpace, Facebook, and LinkedIn are social networks with social media features grafted onto them. LiveJournal, YouTube, and DeviantArt are social media sites with social networking features grafted onto them.
(To be scrupulously precise, LJ is a hybrid of social media site, social network, personal-publishing platform, and content management system -- but I digress.)
Social networks have a very low barrier to engagement: you can participate on a social network without much commitment on your part, and it doesn't take much effort from you. Ross Mayfield's Power Law of Participation covers this. Social networks are on the lower end of that curve. Social media is on the high end.
What social media sells
Why does the distinction between social network and social media matter? Because it changes the focus of what's being sold.
Social networks sell, to their advertisers, the ability to show their ads to people who are participating on the service -- which, again, can be done with a low level of engagement. Social media sites, on the other hand, are selling the ability to show ads to the people who are visiting the people who are participating on the service.
Fundamental to the social-media experience is the notion of creating. On a social media site, your social currency -- the thing that buys you power, prestige, popularity, etc -- is the content you can provide, whether that content be fiction, art, photography, essays, analysis, video, compilation services (tagging/etc), music, what-have-you. Your success or failure in the court of public opinion depends simply and solely on the content you provide. (Remember, on the internet, nobody knows you're a dog.)
You can't have social media sites without media content creators. You can't have social media sites without media content consumers. The role of the social media site, at its core, is to serve as a form of matchmaker, pairing creator with consumer, making it easy for the consumer to find content they want to consume and the creator to find an audience who wants to consume their content.
When a social media service begins to rely on its passive revenue stream, though, that fundamental relationship shifts. Once this happens, the service's matchmaking role is no longer between creator and consumer. Their matchmaking role is between advertiser and creator. They are no longer providing the platform for the benefit of the creator: they are providing the platform for the benefit of the advertiser.
To a social media service that primarily relies on advertising for passive revenue generation, content creators function as editorial staff, creating the material that the service can then sell advertising space on. Under this model, any and all improvements to the service happen only to keep the content producers happy enough to keep them producing.
Social media is in the process of slipping right back to the original model of selling access to content. The only difference now is that they're not selling "access to read the content"; they're selling "access to advertise on content".
This is why advertising will never work on social media: with advertising, social media services are selling someone else's content to third parties. Welcome to Web 2.0: "you make all the content; they keep all the revenue." And for every single social media service, it will remain successful for precisely as long as the content creators don't notice.
The economy of creative work
In order to have content on the service to sell access to, a social media service needs to keep its users happy. Creative people -- the very people who are the heart and soul of social media sites, the people social media sites rely upon to produce the content that social media sites are selling access to -- are part of social economies. They believe in a free and equal exchange of value proposition, in a forms that aren't necessarily a one-to-one transaction of payment received for services provided. They believe that they should receive fair market value for their creative work; they just define it differently than a traditional corporation might.[?][?]
In order to retain that core passionate 1% of the userbase, the group of people who are going to be content providers for a social media site, that site absolutely must offer what the social economy their particular userbase has created considers "fair market value" in exchange for their creative work. This can be one of a thousand things: reliable uptime, specific features, ease of finding audience, ease of interacting with audience, etc, etc. In other words, the service needs to reward its content producers in order to keep them producing.
The thing is, every social media site's userbase-created social economy works differently. Every site's culture has built a differing set of social expectations and reward expectations. What works for one site won't work for another; the social economy that's been created on Facebook, for instance, is drastically different from the economy that's been created on LiveJournal. Every site's userbase creates its own definitions of reward.
And every site's social economy is also going to have a different level of tolerance for having their content re-sold.
A social media service that's trying to capitalize on passive revenue makes the shift from viewing its 1% of passionate users as sources for active revenue, to viewing its 1% of passionate users as content providers upon whose content the service will capitalize. The only way to keep content creators from noticing and resenting this is to make the bargain worthwhile.
There will always be individuals who resent any third-party attempt to profit from their creative work; these are the people who won't participate on a social media service at all, choosing instead to completely own the method of their own production. There'll always be individuals who don't care at all, and will happily continue using the service as long as the service exists. These two groups are outliers. The majority of people are in the middle somewhere: they'll continue using the service as long as they get fair market value in exchange for providing their content for the site to capitalize upon (however that site's culture defines 'fair market value'). As soon as they feel they're no longer receiving fair market value, they'll take themselves -- and their content -- elsewhere.
This starts a vicious downward spiral. As members of that core passionate group begin to become disillusioned, they stop using the service. This, in turn, means that there's less content on the service, both new content and older content (as people delete their old content, delete their accounts, etc). As this begins to happen, the number of pageviews and unique visitors the service can offer their advertisers begins to drop, which makes their passive revenue drop. (It also makes their active revenue drop, too, because remember: the core 1% of the userbase that are likely to be contributing content are also the core people who are likely to be giving the site money directly.)
This, in turn, means that the service -- to meet its revenue goals -- must bring in more money. Because the majority of their development effort is going to advertising-related issues, they have fewer resources to devote to improving the service, adding new features, and otherwise paying into the social economy and providing their core userbase with fair market value. Because their pageviews are dropping, they have to make up for it by adding more ads. Because of ad exhaustion, banner blindness, and targeting problems, the price that they can charge advertisers for running those ads will drop.
This, in turn, enrages and upsets the users even further. Each change in the service's advertising policy will make more people step and say "no, this is past my line, I'm leaving." This makes pageviews and passive revenue drop further, which lowers the amount of money a site can charge for advertising even more.
As the creators of content leave a service, the service must add more and more advertising to meet their passive revenue goals. As the service adds more advertising, the quality of that advertising decreases, and the user experience gets worse and worse. As the user experience gets worse, more creators of content will leave the service, and the cycle keeps going downward.
This is bad for the service: it means that they can't meet their revenue goals and can't retain users. This is bad for the user: it means they're losing the audience and the social connections that originally lured them to the service. This is bad for the advertiser: it means that their ads have less of an audience, and the audience that their ads are being shown to are less interested in them.
The long dark road to cat macros
If that alone were the only problem social media sites were facing in their relationship with advertising, it would be bad enough. It's not the only problem, though. The problem is that very few of the people who are growing disillusioned and leaving are doing so quietly.
In a model where a service combines active revenue with passive revenue, most people have a sliding-scale level of reaction to knowing that a third party (the social media service) is profiting on their created content:
Level 1 reactions are the type you get from passionate evangelists of a service, product, or company. They take every chance possible to lure others into the service, to provide content for the service, to contribute to the service's active revenue stream, etc. They'll defend the service at every opportunity, and try to convince people who have other reactions that those reactions are unreasonable or silly.
Level 2 reactions tend to be the type you get either from people whose attention was never caught by the service -- the 9% who were only occasional contributors -- or the people who used to be level-one type evangelists and burned out. Their attitude can be summed up as, most succinctly, "Who cares?" They're not going to subscribe to the site, purchase services, or otherwise contribute to the active revenue stream, but to a site, they're often indistinguishable from the people who wouldn't have contributed to the active revenue stream anyway. Still, the site can notice that this is happening by watching their active revenue stream; when it starts dropping, there's a good chance this sort of reaction is coming into play.
Level 3 reactions come gradually, and are often also indistinguishable from the general drift-away that all social media services inherently experience as people's priorities change. A site can see that this is happening by watching their active usage numbers; if fewer and fewer people are contributing to the service, it may be a key indicator that the service is failing to deliver fair market value.
There is absolutely, inherently, and vociferously no way possible to miss a Level 4 reaction. And when it happens as a response to a specific major incident, with multiple people hitting Level 4 all at once, people had better duck and cover.
A perfect example of this is Facebook's Beacon: a service that seeks to capture as much data as possible about the user in order to provide perfectly-targeted advertising, while at the same time seeking to provide the user with enough value to make using the service compelling. Beacon does what online advertisers have been doing since the dawn of ads on the internet: it tracks your actions on multiple sites and sends that data back to Facebook, to allow Facebook to micro-target which ads are shown to whom.
When it launched, it was the shot fired around the Internet. And it demonstrates exactly what happens when a service gets passive revenue collection wrong: the consumer marketplace, particularly the core passionate-user marketplace, discourages it. Swiftly, strongly, and with a boot to the head. (And cat macros.)
People who have level 4 reactions are almost universally former level-one evangelists, who feel betrayed by a choice the company has made. Post-Beacon, the loudest Facebook detractors were not the people who never really cared about the site much at all, but the people who were former users and genuinely furious about the privacy concerns inherent in Beacon. And advertisers -- and the people who run the internet advertising industry -- notice. [?]
Wall Street is terrified of advertising on social media. This is part of the reason why: because people who feel that their work is being exploited will stop at nothing to make their displeasure known to as many people as possible. The tendency, for advertisers, is to view this behavior somewhat akin to monkeys flinging poo. "Why should we advertise somewhere people hate ads so much?" they want to know.
This is bad for the service: they gain a poor reputation among advertisers and users alike. This is bad for the users: they feel betrayed, and lose a service that they previously believed in. This is bad for the advertisers: they are paying to advertise somewhere that their advertising will earn them considerable ire.
The problem of editorial control
The other reason Wall Street is terrified of advertising on social media, of course, is the question of content appropriateness and editorial control.
Social media is the only place that this is an issue. For the most part, elsewhere on the Internet, advertisers are guaranteed some level of content appropriateness; they can view the site, see the context in which their ads will appear, and be reasonably comfortable that they aren't going to appear alongside content or opinions that the company doesn't want to support -- whatever that content or opinion might be. A company who agrees to advertise on a sex toy shop, for instance, can be reasonably guaranteed that their ads will be shown alongside, well, sex toys.
Social media, on the other hand, is a free-for-all. Social media services cannot guarantee their advertisers any level of content appropriateness without placing some sort of restriction on what sort of content their users can create -- either by sanitizing the service to the level that advertisers find appropriate, or by implementing some way of filtering content and allowing advertisers to say "don't put my ad on anything that contains this, this, or this".
This, of course, makes users upset, because it drives home to them the fact that they are, in the company's eyes, unpaid content creators. The minute a site puts any form of restriction on what kind of content a user can upload -- whether that site accepts advertising or not -- it will lose the people who would be likely to create that content. (Whether or not this is always a bad thing is left as an exercise for the reader.) The minute a site that accepts advertising puts any form of restriction on what kind of content a user can upload, though, the user will assume that content restriction has something to do with the presence of advertisers being unwilling to appear beside that advertising.
The presence of advertising on a site means that any restriction on content is going to be interpreted, by the userbase, as being a restriction motivated by the needs of the advertiser. It doesn't matter what the real motivation for that content restriction is.
Content producers -- users -- on social media services don't explicitly sign up to produce content for the service to capitalize on. They sign up to utilize or receive the service that the social media site provides. They are willing, to an extent, to have that content capitalized upon, in exchange for the service they receive -- it's that social economy thing again. But the minute the service explicitly calls users' attention to the fact that they are functioning as unpaid content creators, and makes users feel as though there is any sort of content restriction in place, there's a huge psychological shift that will, in many cases, trigger a shift in the attitude towards having their content re-sold.
This is bad for the service: it puts them in a place of having to balance screening content for appropriateness vs. not losing advertisers, makes them have to justify the content on their service to their advertisers, and makes their userbase distrust their motives every time they have to place any restriction on content at all. This is bad for the users: it means that they lose the ability to produce certain content, and makes them consciously aware of the fact that the social media service views them as a cash cow. This is bad for the advertisers: it means that they are advertising somewhere where, at any second, their ad can appear somewhere they really don't want it to appear.
Can it ever work?
Is it possible for a social media site to implement advertising in a way that doesn't drive away its core participants?
Behavioral economics indicate that advertising is only likely to work on a social media site if the site manages to deliver an advertising model where:
And if a site fails on elements 1-4 of this list, the users will feel uncomfortable, and will generally either ignore the situation or express their discontent politely (if firmly). When a site fails on #5, though, someone had better get an umbrella, because the poo-flinging is about to start.
The minute a site makes its users feel like they aren't the primary focus or concern, the minute a social media site calls attention to the fact that the site is capitalizing on its users' creative effort, each individual user is going to consciously examine the transactional benefit they're obtaining in exchange for providing that content.
In order for a social media service to succeed at advertising, they need to do something that I don't think a lot of services are doing: they need to carefully examine the social economy of their service. The people who are making the decisions about what ad products to introduce on the service need to understand, completely and thoroughly, what it is that their content creators want -- and then they need to deliver it. To avoid driving away their content creators and reducing the amount of content they have available to sell, social media sites are going to have to start caring a hell of a lot more about delivering fair market value -- however their particular service's users have come to define 'fair market value'.
In order for advertising on social media to be successful from an advertiser's point of view, those advertisers are going to have to be willing to redefine 'success'. Social media is bad for call-to-action campaigns, because people aren't there to click on advertising. Where social media can offer advertisers value is as a place to raise brand awareness and a place to put businesses in touch with customers directly. (As the Cluetrain Manifesto so pithily put it: Markets are conversations.) But those sorts of campaigns can't be measured by immediate numbers; advertisers are going to have to be willing to take the long view.
These necessary conditions are hard. More than that, though, they're long-term, and they are unique. Every site's solution is going to look different, and what works for one social media service isn't going to work for the next.
Eventually, I believe the bubble is going to burst. And much like Web 2.0 rose from the ashes of Bubble 1.0, something else is going to show up to replace it.
Until then, when you join a new social media service, ask yourself: where's your line, and what will you do when that service crosses it?
[ Part one | Part two | Part three ]
This morning, we're going to talk about how these market forces affect the users of a social media service, and reach my conclusion: that advertising will never work on social media as a sustainable revenue-generating strategy.
(Again, worth reiterating for those in the industry: I'm writing for a layperson, and there are lots of points I'm simplifying.)
The recap
Social media services that have fiduciary duty to outside investors, and social media services that are looking to sell to someone else before the bubble bursts, are looking to make significant profits above and beyond their operating costs, in order to appear more attractive. Most of these sites have chosen advertising as a form of capitalizing on the 90% of site visitors who never contribute and the 9% of site visitors who only contribute occasionally.
Advertising on social media, as it exists right now, is under-performing. Adblock, banner blindness, and the fact that people don't come to social media services in a frame of mind to buy things all contribute to a poor rate of return. Companies, when faced with under-performing advertising, put more and more of their effort into making their advertising perform better.
"Web 2.0", as a concept, is built on the notion of user-generated content. A service isn't selling their own content; they're selling you a home for your content, and selling other people the ability to look at your content.
Sites have two possible sources of revenue: active revenue, or the revenue that users of their site have consciously chosen to give them (subscription revenue), and passive revenue, or the revenue that they acquire from others based on the activity of their users (generally, advertising revenue).
With me so far? Okay, here we go.
Social network vs. social media
I left off yesterday saying:
An advertiser on a social media site is not buying the ability to show ads to you, the person who's creating stuff on a social media site. They're buying the ability to show ads to your readers.
This is a critical distinction, and in order to understand how this affects the users of social media sites, we need to define the difference between 'social networking site' and 'social media site', because that difference makes a big difference in the social economy of the service.
The two terms are not interchangeable, ultimately. Social networking seeks to (for the most part) replicate a person's existing social web (think of sites like Classmates.com and LinkedIn.com); its purpose is to define your ties with others. Social media takes that one step further: it seeks to create and nurture social ties to others, through the content that you provide.
If you think of a site as a game, the "winning conditions" of the game will be a good clue as to whether the site is a social networking site or a social media site. If you win the game when you collect all of your existing friends, or collect as many new friends as possible, you're on a social network. If you win the game when you provide content that's interesting enough to get other people to build relationships with you, when your social currency is the content you provide, you're on a social media site.
These are very, very, very hard terms to define empirically and not by example -- especially since most sites combine elements of both. Let's try for an example, in the hopes it might help anyone who's confused: MySpace, Facebook, and LinkedIn are social networks with social media features grafted onto them. LiveJournal, YouTube, and DeviantArt are social media sites with social networking features grafted onto them.
(To be scrupulously precise, LJ is a hybrid of social media site, social network, personal-publishing platform, and content management system -- but I digress.)
Social networks have a very low barrier to engagement: you can participate on a social network without much commitment on your part, and it doesn't take much effort from you. Ross Mayfield's Power Law of Participation covers this. Social networks are on the lower end of that curve. Social media is on the high end.
What social media sells
Why does the distinction between social network and social media matter? Because it changes the focus of what's being sold.
Social networks sell, to their advertisers, the ability to show their ads to people who are participating on the service -- which, again, can be done with a low level of engagement. Social media sites, on the other hand, are selling the ability to show ads to the people who are visiting the people who are participating on the service.
Fundamental to the social-media experience is the notion of creating. On a social media site, your social currency -- the thing that buys you power, prestige, popularity, etc -- is the content you can provide, whether that content be fiction, art, photography, essays, analysis, video, compilation services (tagging/etc), music, what-have-you. Your success or failure in the court of public opinion depends simply and solely on the content you provide. (Remember, on the internet, nobody knows you're a dog.)
You can't have social media sites without media content creators. You can't have social media sites without media content consumers. The role of the social media site, at its core, is to serve as a form of matchmaker, pairing creator with consumer, making it easy for the consumer to find content they want to consume and the creator to find an audience who wants to consume their content.
When a social media service begins to rely on its passive revenue stream, though, that fundamental relationship shifts. Once this happens, the service's matchmaking role is no longer between creator and consumer. Their matchmaking role is between advertiser and creator. They are no longer providing the platform for the benefit of the creator: they are providing the platform for the benefit of the advertiser.
To a social media service that primarily relies on advertising for passive revenue generation, content creators function as editorial staff, creating the material that the service can then sell advertising space on. Under this model, any and all improvements to the service happen only to keep the content producers happy enough to keep them producing.
Social media is in the process of slipping right back to the original model of selling access to content. The only difference now is that they're not selling "access to read the content"; they're selling "access to advertise on content".
This is why advertising will never work on social media: with advertising, social media services are selling someone else's content to third parties. Welcome to Web 2.0: "you make all the content; they keep all the revenue." And for every single social media service, it will remain successful for precisely as long as the content creators don't notice.
The economy of creative work
In order to have content on the service to sell access to, a social media service needs to keep its users happy. Creative people -- the very people who are the heart and soul of social media sites, the people social media sites rely upon to produce the content that social media sites are selling access to -- are part of social economies. They believe in a free and equal exchange of value proposition, in a forms that aren't necessarily a one-to-one transaction of payment received for services provided. They believe that they should receive fair market value for their creative work; they just define it differently than a traditional corporation might.[?][?]
In order to retain that core passionate 1% of the userbase, the group of people who are going to be content providers for a social media site, that site absolutely must offer what the social economy their particular userbase has created considers "fair market value" in exchange for their creative work. This can be one of a thousand things: reliable uptime, specific features, ease of finding audience, ease of interacting with audience, etc, etc. In other words, the service needs to reward its content producers in order to keep them producing.
The thing is, every social media site's userbase-created social economy works differently. Every site's culture has built a differing set of social expectations and reward expectations. What works for one site won't work for another; the social economy that's been created on Facebook, for instance, is drastically different from the economy that's been created on LiveJournal. Every site's userbase creates its own definitions of reward.
And every site's social economy is also going to have a different level of tolerance for having their content re-sold.
A social media service that's trying to capitalize on passive revenue makes the shift from viewing its 1% of passionate users as sources for active revenue, to viewing its 1% of passionate users as content providers upon whose content the service will capitalize. The only way to keep content creators from noticing and resenting this is to make the bargain worthwhile.
There will always be individuals who resent any third-party attempt to profit from their creative work; these are the people who won't participate on a social media service at all, choosing instead to completely own the method of their own production. There'll always be individuals who don't care at all, and will happily continue using the service as long as the service exists. These two groups are outliers. The majority of people are in the middle somewhere: they'll continue using the service as long as they get fair market value in exchange for providing their content for the site to capitalize upon (however that site's culture defines 'fair market value'). As soon as they feel they're no longer receiving fair market value, they'll take themselves -- and their content -- elsewhere.
This starts a vicious downward spiral. As members of that core passionate group begin to become disillusioned, they stop using the service. This, in turn, means that there's less content on the service, both new content and older content (as people delete their old content, delete their accounts, etc). As this begins to happen, the number of pageviews and unique visitors the service can offer their advertisers begins to drop, which makes their passive revenue drop. (It also makes their active revenue drop, too, because remember: the core 1% of the userbase that are likely to be contributing content are also the core people who are likely to be giving the site money directly.)
This, in turn, means that the service -- to meet its revenue goals -- must bring in more money. Because the majority of their development effort is going to advertising-related issues, they have fewer resources to devote to improving the service, adding new features, and otherwise paying into the social economy and providing their core userbase with fair market value. Because their pageviews are dropping, they have to make up for it by adding more ads. Because of ad exhaustion, banner blindness, and targeting problems, the price that they can charge advertisers for running those ads will drop.
This, in turn, enrages and upsets the users even further. Each change in the service's advertising policy will make more people step and say "no, this is past my line, I'm leaving." This makes pageviews and passive revenue drop further, which lowers the amount of money a site can charge for advertising even more.
As the creators of content leave a service, the service must add more and more advertising to meet their passive revenue goals. As the service adds more advertising, the quality of that advertising decreases, and the user experience gets worse and worse. As the user experience gets worse, more creators of content will leave the service, and the cycle keeps going downward.
This is bad for the service: it means that they can't meet their revenue goals and can't retain users. This is bad for the user: it means they're losing the audience and the social connections that originally lured them to the service. This is bad for the advertiser: it means that their ads have less of an audience, and the audience that their ads are being shown to are less interested in them.
The long dark road to cat macros
If that alone were the only problem social media sites were facing in their relationship with advertising, it would be bad enough. It's not the only problem, though. The problem is that very few of the people who are growing disillusioned and leaving are doing so quietly.
In a model where a service combines active revenue with passive revenue, most people have a sliding-scale level of reaction to knowing that a third party (the social media service) is profiting on their created content:
- "Hey, they work hard to provide me a service I find valuable; I don't mind them profiting from it. I'll keep paying them."
- "I'm a little uncomfortable with the implications of this, so I'm going to stop actively paying them, but I find the service valuable enough that I'm not going to stop using it."
- "I'm not okay with other people profiting off my creative work. I'm going to stop paying them and remove all my old content so they can't profit from it any longer."
- "I'm so not okay with this that I'm not only withdrawing all my support and all my content, I'm going to get everyone I know to do the same."
Level 1 reactions are the type you get from passionate evangelists of a service, product, or company. They take every chance possible to lure others into the service, to provide content for the service, to contribute to the service's active revenue stream, etc. They'll defend the service at every opportunity, and try to convince people who have other reactions that those reactions are unreasonable or silly.
Level 2 reactions tend to be the type you get either from people whose attention was never caught by the service -- the 9% who were only occasional contributors -- or the people who used to be level-one type evangelists and burned out. Their attitude can be summed up as, most succinctly, "Who cares?" They're not going to subscribe to the site, purchase services, or otherwise contribute to the active revenue stream, but to a site, they're often indistinguishable from the people who wouldn't have contributed to the active revenue stream anyway. Still, the site can notice that this is happening by watching their active revenue stream; when it starts dropping, there's a good chance this sort of reaction is coming into play.
Level 3 reactions come gradually, and are often also indistinguishable from the general drift-away that all social media services inherently experience as people's priorities change. A site can see that this is happening by watching their active usage numbers; if fewer and fewer people are contributing to the service, it may be a key indicator that the service is failing to deliver fair market value.
There is absolutely, inherently, and vociferously no way possible to miss a Level 4 reaction. And when it happens as a response to a specific major incident, with multiple people hitting Level 4 all at once, people had better duck and cover.
A perfect example of this is Facebook's Beacon: a service that seeks to capture as much data as possible about the user in order to provide perfectly-targeted advertising, while at the same time seeking to provide the user with enough value to make using the service compelling. Beacon does what online advertisers have been doing since the dawn of ads on the internet: it tracks your actions on multiple sites and sends that data back to Facebook, to allow Facebook to micro-target which ads are shown to whom.
When it launched, it was the shot fired around the Internet. And it demonstrates exactly what happens when a service gets passive revenue collection wrong: the consumer marketplace, particularly the core passionate-user marketplace, discourages it. Swiftly, strongly, and with a boot to the head. (And cat macros.)
People who have level 4 reactions are almost universally former level-one evangelists, who feel betrayed by a choice the company has made. Post-Beacon, the loudest Facebook detractors were not the people who never really cared about the site much at all, but the people who were former users and genuinely furious about the privacy concerns inherent in Beacon. And advertisers -- and the people who run the internet advertising industry -- notice. [?]
Wall Street is terrified of advertising on social media. This is part of the reason why: because people who feel that their work is being exploited will stop at nothing to make their displeasure known to as many people as possible. The tendency, for advertisers, is to view this behavior somewhat akin to monkeys flinging poo. "Why should we advertise somewhere people hate ads so much?" they want to know.
This is bad for the service: they gain a poor reputation among advertisers and users alike. This is bad for the users: they feel betrayed, and lose a service that they previously believed in. This is bad for the advertisers: they are paying to advertise somewhere that their advertising will earn them considerable ire.
The problem of editorial control
The other reason Wall Street is terrified of advertising on social media, of course, is the question of content appropriateness and editorial control.
Social media is the only place that this is an issue. For the most part, elsewhere on the Internet, advertisers are guaranteed some level of content appropriateness; they can view the site, see the context in which their ads will appear, and be reasonably comfortable that they aren't going to appear alongside content or opinions that the company doesn't want to support -- whatever that content or opinion might be. A company who agrees to advertise on a sex toy shop, for instance, can be reasonably guaranteed that their ads will be shown alongside, well, sex toys.
Social media, on the other hand, is a free-for-all. Social media services cannot guarantee their advertisers any level of content appropriateness without placing some sort of restriction on what sort of content their users can create -- either by sanitizing the service to the level that advertisers find appropriate, or by implementing some way of filtering content and allowing advertisers to say "don't put my ad on anything that contains this, this, or this".
This, of course, makes users upset, because it drives home to them the fact that they are, in the company's eyes, unpaid content creators. The minute a site puts any form of restriction on what kind of content a user can upload -- whether that site accepts advertising or not -- it will lose the people who would be likely to create that content. (Whether or not this is always a bad thing is left as an exercise for the reader.) The minute a site that accepts advertising puts any form of restriction on what kind of content a user can upload, though, the user will assume that content restriction has something to do with the presence of advertisers being unwilling to appear beside that advertising.
The presence of advertising on a site means that any restriction on content is going to be interpreted, by the userbase, as being a restriction motivated by the needs of the advertiser. It doesn't matter what the real motivation for that content restriction is.
Content producers -- users -- on social media services don't explicitly sign up to produce content for the service to capitalize on. They sign up to utilize or receive the service that the social media site provides. They are willing, to an extent, to have that content capitalized upon, in exchange for the service they receive -- it's that social economy thing again. But the minute the service explicitly calls users' attention to the fact that they are functioning as unpaid content creators, and makes users feel as though there is any sort of content restriction in place, there's a huge psychological shift that will, in many cases, trigger a shift in the attitude towards having their content re-sold.
This is bad for the service: it puts them in a place of having to balance screening content for appropriateness vs. not losing advertisers, makes them have to justify the content on their service to their advertisers, and makes their userbase distrust their motives every time they have to place any restriction on content at all. This is bad for the users: it means that they lose the ability to produce certain content, and makes them consciously aware of the fact that the social media service views them as a cash cow. This is bad for the advertisers: it means that they are advertising somewhere where, at any second, their ad can appear somewhere they really don't want it to appear.
Can it ever work?
Is it possible for a social media site to implement advertising in a way that doesn't drive away its core participants?
Behavioral economics indicate that advertising is only likely to work on a social media site if the site manages to deliver an advertising model where:
- advertising is unobtrusive, gentle, and respectful;
- people feel like the advertising is relevant to them;
- people feel like they get value from the advertising;
- people feel like the service owners make choices for them first, not advertisers first;
- people do not feel like they are being exploited, monetized, turned into commodities, or in any way, shape, or form being used primarily to generate revenue for the company without receiving fair market value.
And if a site fails on elements 1-4 of this list, the users will feel uncomfortable, and will generally either ignore the situation or express their discontent politely (if firmly). When a site fails on #5, though, someone had better get an umbrella, because the poo-flinging is about to start.
The minute a site makes its users feel like they aren't the primary focus or concern, the minute a social media site calls attention to the fact that the site is capitalizing on its users' creative effort, each individual user is going to consciously examine the transactional benefit they're obtaining in exchange for providing that content.
In order for a social media service to succeed at advertising, they need to do something that I don't think a lot of services are doing: they need to carefully examine the social economy of their service. The people who are making the decisions about what ad products to introduce on the service need to understand, completely and thoroughly, what it is that their content creators want -- and then they need to deliver it. To avoid driving away their content creators and reducing the amount of content they have available to sell, social media sites are going to have to start caring a hell of a lot more about delivering fair market value -- however their particular service's users have come to define 'fair market value'.
In order for advertising on social media to be successful from an advertiser's point of view, those advertisers are going to have to be willing to redefine 'success'. Social media is bad for call-to-action campaigns, because people aren't there to click on advertising. Where social media can offer advertisers value is as a place to raise brand awareness and a place to put businesses in touch with customers directly. (As the Cluetrain Manifesto so pithily put it: Markets are conversations.) But those sorts of campaigns can't be measured by immediate numbers; advertisers are going to have to be willing to take the long view.
These necessary conditions are hard. More than that, though, they're long-term, and they are unique. Every site's solution is going to look different, and what works for one social media service isn't going to work for the next.
Eventually, I believe the bubble is going to burst. And much like Web 2.0 rose from the ashes of Bubble 1.0, something else is going to show up to replace it.
Until then, when you join a new social media service, ask yourself: where's your line, and what will you do when that service crosses it?
[ Part one | Part two | Part three ]
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