MySpace Users Build Up Ad Immunity

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As impressive as MySpace's ad-revenue growth may be, some marketers are dissatisfied with the effectiveness they're seeing from placing ads there. Of the total revenue generated by FIM, $62 million, or 26%, comes from a $900 million, multiyear deal with Google (BusinessWeek.com, 8/8/06) that gives Google the exclusive right to place search ads on MySpace pages. The idea is that Google acts as a middleman between marketers who want to reach social-network users and the networks where those ads are placed. Trouble is, Google pays News Corp. for that right even when the ads don't generate much, if any, revenue. "We have found that social-networking inventory is not monetizing as well as expected," said Google Chief Financial Officer George Reyes during a Jan. 31 call with analysts (BusinessWeek.com, 1/31/08).

Still in Its Infancy

The impact is felt especially acutely by direct marketers who want people to click on their ads and then buy something from a Web site (as opposed to, say, advertisers who simply want to get a brand message across). Direct marketers say only a fraction of 1% of the people who see the ads click on them. Chernin says new targeting efforts enabling marketers to deliver ads to more than 750 interest groups are bringing results. Some marketers, he says, have seen as much as a 300% improvement in response to their ads. But that increase is off the comparatively low response rates for social-network ads in general, marketers say. And even that improvement may not be enough for marketers disillusioned with social-network advertising. "It is really hard to make money on anemic click-through rates," says Seremet.

To be sure, most marketers consider social-network advertising to be in its infancy and expect it to take some time to be successful. Even Google founder Sergey Brin says his company still has not found the "killer best way" to advertise on social networks. "I think it's a massive opportunity," says Paul Levine, vice-president of marketing at AdBrite, an advertising network that places ads on social networks across the Web. "And, like any medium, it takes a while to figure out what will work. I think it's no question it will be big business."

There is a question, however, about how much experimentation social-network users will deal with before they ignore the ads completely—or even leave the site. According to Web measurement firm comScore (SCOR), MySpace saw its U.S. audience fall from nearly 72 million visitors in October, 2007, to just shy of 69 million in December. The number of minutes users spend on the site also has decreased, dropping about 24% in December from the prior year, to 179 minutes per visitor per month, according to comScore. "There's too much [advertising] when you sign on," says John Sigona, a 32-year-old MySpace user who likes the site, though he ignores the ads. "They don't interest me." If the comScore figures constitute a trend, MySpace may need to rethink its social–media strategy.

Holahan is a writer for BusinessWeek.com in New York .