The Future of Social Media Advertising

If social media sites draw some of the highest traffic on the web, why have they had such an awful time figuring out how to generate revenue?

Traditional banner ads have been an epic fail, and with no shortage of sites to choose from users would revolt and traffic would plummet if sites implemented fee-based membership structures. The sole exception to the banner ad rule is perhaps LinkedIn, whose niche audience has proved to be receptive to business- and employment-related advertisements.

Interruption Marketing is Dead

The lead adopter of social media, the Millennial Generation, is wholly immune to traditional advertising. They don’t listen to the radio or read print newspapers, they gloss over magazine ads and fast forward through TV commercials, and they probably haven’t ever clicked on a banner ad. Millennials make their purchasing decisions based almost solely on brand loyalty, word-of-mouth reviews, and capricious whim. The more you try to interrupt their day-to-day experiences, the more distance you put between them and your product.

Take this already ad-immune audience and add another complicating factor: people visit social media sites for a distinct purpose  – to be social – and advertisements become nothing but an annoying distraction that cheapens the experience.

To extrapolate from my own experience, I rarely – if ever – click on banner ads anywhere on the Internet, but at least when I’m browsing the open web I’m in a full-blown state of Attention Deficit Disorder and am prone to click on anything I find genuinely interesting. When I’m on Facebook, though, my attention is fully dedicated to the task at hand – checking in on my friend’s updates and escapades. I’d be hard pressed to find a banner ad that deserves a click-through more than photos of friend’s debauchery from the night before.

Just as I’ve learned to avoid the temptation of uber-processed food crap at grocery stores by skipping the aisles and shopping on the perimeter (think: produce, protein, dairy, etc.), I’ve learned to wear blinders on social media sites, too. I focus on the 700 or so pixels at the center of the page and ignore the ads in the margins. And no, Mr. Social Media Site, if you add horizontal banners within that center-mass I won’t start clicking, I’ll just adjust my blinders.

New Platforms Require a New Approach

Social media sites offer web-based social experiences. Duh. Social experiences inherently preclude a susceptibility to advertisements. It’s no different than if you were conversing with a friend in a cafe; you’d probably be far less likely to read some placard on the counter than if you were alone (well, depending on the friend.) Now imagine you’re in a cafe with 300 of your friends and they’re passing around photos, do you think anyone would even notice the placard? Read it? Act on the offer?

If the problem with traditional advertising is that banner ads are distracting and detract from user experience, then the future of social media advertising rests on making ads part of that experience.

I’m not talking about embedding ads in profile pictures or in user-to-user messages; that’s still like trying to mix oil and water, just in a different bowl. I’m talking about sewing ad offers into the very fabric of the platform in such a way that the ads actually enhance user experience. Yes, ads that consumers would be happy to see, and not only see but engage with. Google, for example, has found a way to generate revenue (sponsored listings via Google AdWords) while adding value for their users (relevant search results.) The integration is seamless and there’s no distraction or detraction.

Back to the cafe: There you are, surrounded by 300 friends (must be quite a cafe,) looking at someone’s photos from Bay to Breakers, and you decide you need a caffeine boost. The cafe wants you to read that placard to hear about their new promo, so what if they offered some incentive – a double soy latte, maybe – if you’d read the placard start to finish, with no commitment? I’d probably try to read it twice.

The New Approach? Make Ads an Integral Part of the Experience

Offerpal Media, based in Fremont, CA, has found a way to do just that: embed ad offers into the fabric of the social media experience. Last week I met with Matt McCallister, Offerpal’s Director of Marketing, to discuss their unique approach on social media advertising. From what I heard, Offerpal is set to revolutionize the industry in 2009.

MySpace, SecondLife, Facebook, Friendster and a host of other social media sites have all opened up their Application Programming Interface (API) to allow 3rd party developers to develop applications for their platforms. This has given way to the creation of virtual worlds in which users can earn virtual currency as they progress through a game. The platform may be different, but the concept is exactly the same as we’ve seen on video game consoles over the past decade; someone playing a game can earn virtual currency by completing goals or challenges, and then use that money to buy virtual property/guns/clothes/etc.

Offerpal has created an advertising model that ties into the virtual currency system on those community-based applications by allowing users to earn currency in exchange for participating in ad offers. In short, as a user progresses through a game they are presented with offer-based ads that will enhance their experience of playing the game.

How does it work?

Offerpal provides an iFrame that is embedded in a publisher’s website. The user never leaves the site, and the iFrame stacks multiple offers on each page – 20-25 offers/page – and also breaks them down by categories (surveys, signup form.) With 2,000 offers in their system, Offerpal says the wide variety “enables users to find an offer that they would have been interested in anyway (’I've been meaning to sign up for blockbuster DVD rental account’, or ‘I needed a new quote on auto insurance,’) which translates to very high quality leads for advertisers.”

Just like Google search results, users are only likely to look at the first few pages of offers. Thus, Offerpal presents them first with the offers they’re mostly likely to choose based on profile data, social behavior, and past engagement offers.As users fill out more offers they become further qualified and the ads become more targeted; if a user always selects surveys over lead forms, then the system starts presenting the user with surveys as the first choice. Ohe goal is to increase the quality of the experience, thus prolonging the time spent playing the game and creating additional opportunity for revenue generation.

A Quick Example

The #1 application on MySpace is a game called Mobsters. Think “The Godfather” in game form. The game involves role playing, and as a user begins their mob career as a petty thief, they need to complete missions and earn virtual currency in order to build their criminal empire and leverage money as power (I’m seeing some parallels to real life here.) In the game, users can click on a “Godfather” link, and the Godfather offers them “favor points” for taking part in ad offers. OfferPal has teamed up with MySpace and dozens of other social media sites, advertisers, and creators of applications like Mobsters to present users with over 2,000 ad offers. Playing a racing game? JiffyLube might sponsor a scenario in which you need to get an oil change in order to improve your car’s performance.

Click here for an 1191 x 951 image.

Virtual Currency Can Generate Some Very Real Revenue

The Cost Per Impression (CPM) and Click Through Rates (CTR) of traditional advertising on social media sites are notoriously low. Offerpal’s engagement-based ads, however, require a user to complete an action (e.g. fill out a lead form, sign up for a free trial, fill out a survey, download a ring tone, watch a video ad, etc.) in order to be compensated with the virtual currency. For advertisers, this means immediate conversion. Advertisers pay via Cost Per Action (CPA) – a flat fee per survey-completion or free trial or signup.

Everybody wins: Advertisers see previously unheard of conversion rates, which gives social media platforms access to substantial means of revenue generation. For consumers, advertisements become a seamless part of the user experience, encouraging them to engage rather than ignore.

As for Offerpal, they’ve recently secured $15 million in Series B funding, so if their growth in 2008 was any indication of their future success, I think they’re primed to revolutionize social media advertising.

The Bottom Line For Advertisers

When it comes to social media advertising, traditional marketing is antiquated and ineffective; a waste of your ad spend. The ad-mentality and online behavior of the Millennial generation makes them all but inaccessible, and trying to “interrupt” them with classic methodologies is only going to widen the gap. Whether you embark on a partnership with Offerpal is beyond the scope of this article, but what matters is that you realize engagement-based offers are the future of social media advertising. Don’t try to interrupt consumers, make your offer seamless.  Don’t distract them from a social media experience, help to enhance it.

To learn more about Offerpal, you can visit their website or download their media kit (PDF.)

Photo credit: Elisa HH

Tagged as: OfferPal, Online Advertising, Social Media