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Can Social Media Advertising Work?

NEW YORK -- One of the great questions facing today's advertisers is how to reach consumers in a media environment where control of the content is not in the hands of a consolidated publisher, but distributed among the millions of individuals who collectively make up powerful online communities.

How do brands insert their messages into the conversations between friends happening on social environments like MySpace and Facebook? Taking up that issue here at a conference on social media hosted by the Interactive Advertising Bureau, the trade association for digital advertisers, was Seth Goldstein, co-founder and CEO of Social Media Networks, an ad consultancy focused on monetizing the social Web.

"Social media is killing Internet advertising," Goldstein said. "The problem is, a few years ago, people started to become more interested in each other and less interested in the ads."

For most people working in the online advertising world, the question of whether social networks are a passing fad has been answered with the burgeoning popularity of communities such as Facebook and MySpace.

While the sites are here to stay, even the companies who have done the very best at turning Internet ads into cash machines have struggled when it comes to reaching their highly engaged users.

"Even Google can't crack the social media problem," Goldstein said, referring to a comment from Sergey Brin, co-founder of the search giant who has said that Google's deal to serve ads on MySpace has so far yielded disappointing results.

Part of the challenge is that a thoughtful brand insertion into a highly personalized conversation on a social network runs into a scaling problem. Banner ads, by contrast, scale very easily, but they are proving to be thoroughly ineffective, Goldstein said, citing internal figures from his company that estimate the clickthrough rate on banner ads placed on social networks at about 0.04 percent.

The new, two-way medium that the social networks have become demands a new approach to advertising, Goldstein said.

"You can't just put up a big banner that says 'Click me.'" Banner ads fail because social network users are accustomed to seeing them, and ignoring them has become a reflex, he added.

Instead, Goldstein is taking the approach that the answer to the social network advertising problem lies in a uniquely social form of brand building, where people who share an interest in a product are brought together on the network.

So how then do advertisers win their seat at the table? Goldstein is betting that it's going to be through the applications that people add to their profiles on the social networks. Applications have become central to the social networking experience. While difficult to measure in real numbers, the applications that people add to their profiles are an undeniable driver of engagement.

It started last May when Facebook opened its platform to the developer community, and every other major social network has followed suit since.

The apps that spread like wildfire on the social networks are an easy target for critics -- who charge that most of them are useless or inane. Nevertheless, for advertisers whose success lies in engaging their target audience on the media where they spend time, social network apps are too important to ignore, Goldstein said.

"Apps aren't important because they're useful," he said. "They're important because people are spending an ungodly amount of time using them."

Goldstein offered an example of a campaign that his company developed with BMW to roll out on Facebook. They created an app to promote BMW's 1 Series line, in which a user could take a virtual joyride to a destination of their choice and inviting their Facebook friends to come along for the ride. Users could customize the car, selecting its color and other model features.

With that app, BMW took a shot at creating an online community around its brand, enabling Facebook members to engage with the product on an entirely opt-in basis.

The opt-in aspect has become increasingly critical in the space. Facebook got off to a rocky start with its Beacon ad targeting program, which touched off a minor uproar when people started complaining that it was violating their privacy.

Since that debacle, the proposition of advertising on social networks has become loaded with concerns over the ethics of profile-based ad targeting.

"Beacon was a setback not just for Facebook, but the whole industry," Goldstein said.

Engagement is still tough to measure, Goldstein admitted, though with a downloadable application it is easy enough to tally up the number of people who have installed it or passed it along to friends.

Goldstein likened the app phenomenon to pop songs. It's a rare song that people remember years after it made its radio debut, but there is a never-ending supply of new music.

So too with apps, he claimed. People might not be throwing sheep six months from now (courtesy of Slide's Facebook app SuperPoke), but some new app will appear in its place and sweep over the network with equal verve. The content may change, but advertisers ought to bet the medium is here to stay, he said.