Last month, advertising giant Interpublic Group caused a stir when it agreed to spend at least $10 million on advertising at Facebook, the wildly popular Web site for college students and others. The deal was accompanied by a separate agreement in which IPG acquired 0.5% of privately held Facebook. The Web site was launched two years ago by Mark Zuckerberg, who was a sophomore at Harvard University at the time (see BusinessWeek.com, 3/28/06, "Facebook's on the Block").
Yet already Facebook generates more page views than online retailer Amazon.com (AMZN), as members socialize, post photos of themselves and friends, and check out each other's home pages.
It was a significant sign that major advertising companies and their blue-chip clients are getting serious about exploring the frontiers of digital media. In particular, they're looking at the potential opportunities in what's known as user-generated content. While TV shows and mainstream Web pages are built around professionally produced media, social networking sites are based on content created by the rest of us, from high school geeks and college jocks to soccer moms and golf-addicted dads. Blogs and podcasts, in which people can write or produce their own columns, diaries, or radio shows, are other examples of user-generated content. Some TV shows, such as America's Funniest Home Videos, incorporate user-generated content into a more highly produced environment.
A LOT OF WOOING. Of course, it's hard to predict what normal folks will say or do online, creating all sorts of risks and challenges for advertisers. Still, user-generated content is exploding in popularity, as technology puts more power into the hands of individuals and communities (see BusinessWeek.com, 3/13/06, "The Net's New Age"). MySpace, the leading social-networking site, owned by News Corp. (NWS), became the top U.S. Web site last week for the first time, according to market researcher Hitwise. The MySpace site accounted for 4.6% of all visits to U.S. Web pages, beating out Yahoo!'s (YHOO) mail service and Google's (GOOG) search engine.
Social networking is so hot that major media companies are spending big bucks to buy their way into the business. News Corp. paid $580 million for control of MySpace. Now, there are reports that Bebo, a relatively small company in the field, has turned down an acquisition offer of $550 million (see BusinessWeek.com, 7/11/06, "A Billion for Bebo? Bubble, Bubble, Double Trouble").
The rise of user-generated content has created challenges, as well as opportunities, for advertisers. MySpace and other social-networking sites have sparked rising concern over sexual predators, especially those who target minors. And despite their huge audiences, sites such as MySpace and Facebook generate relatively few dollars in revenue (see BusinessWeek.com, 4/10/06, "Socializing for Dollars").
SAFE SPACE? The IPG deal with Facebook suggests that the advertising industry is getting much more serious about figuring out how to take advantage of social-networking sites and user-generated content in general. For IPG, the greatest benefit may be the understanding that it gleans from working closely with Facebook.
IPG also created a user-generated content lab last month. "My task is to acquire propriety insights into what is happening with user-generated content, to engage with the media community and help them develop advertising models, and to help them execute specific programs," says Brian Monahan, director of the Los Angeles-based lab. The former Microsoft (MSFT) executive started work at the lab just two weeks ago.
While the lab itself is young, IPG has had experience with digital advertising. It helped design www.whereisyours.com, a corporate social-networking site that promotes Nature Valley granola bars from General Mills (GIS). Users get to post information about their favorite places to enjoy nature. IPG also helped Sony Entertainment develop a successful online campaign for the movie When a Stranger Calls.
ADVERTISERS BEWARE. Social-networking companies are also working to iron out potential conflicts between advertisers and the often freewheeling members who maintain home pages on their sites. The raucous nature of MySpace is key to the site's appeal. But it runs the risk of putting off some advertisers that are sensitive about their brand. "It would be naive to think that advertisers aren't concerned about these issues, but it hasn't had an effect on revenue so far," says Michael Barrett, a veteran of the AOL unit of Time Warner (TWX) who was recently named chief revenue officer at Fox Interactive Media. FIM includes MySpace and other News Corp. sites such as gaming destination IGN.com and sports site scout.com.
Barrett points out that advertisers have dealt with online controversy before. They aren't going to run and hide at the first sign of trouble at MySpace. The site has hired a chief security officer, and it's working with law enforcement officials to maintain safety.
MySpace also gives advertisers a great deal of control over where their ads will appear. They can place ads on the main home page or on channel home pages, where little if any user-generated content is to be found. They also can place ads so that users see them only when they are logged onto their own home page. That means they won't be exposed to an ad if they visit another member's site, where they might view material they find objectionable.
TARGETED MARKETING. Technology is helping keep advertisers, too. At VideoEgg, a video distribution site, increasingly complex software can screen for material that advertisers might find objectionable, such as profanity or nudity. While the content may remain online, advertisers can be steered away from it, according to Troy Young, chief marketing officer for VideoEgg.
The new software helps advertisers in other ways, too. In traditional media environments, advertisers connect with potential customers by buying time or space adjacent to content that the customer finds appealing. People who want to market trucks designed for men advertise on sporting events and other shows popular among men. But on the Web, sophisticated new software programs collect information about users and market to them regardless of what they are watching or doing online.
Once the advertiser figures out exactly who the truck-buying men of the world are, it can market trucks to them while they are checking the weather, looking at their e-mail, or doing anything else, according to Young. It can market to them all the time, with greater precision.
It's just a beginning. But advertisers are determined to figure out how to participate in the new world of digital media.