June 18th, 2008

MySpace De-Clutters, Clearing Room for Big Ads

By Mike Musgrove
The Washington Post

MySpace is getting a renovation this week as it seeks to build advertising revenue and provide a simplified experience to consumers.

Famous for its busy, flashing pages, the social networking site is going for a less cluttered look and new features intended to make navigation easier for its 110 million users. Other tweaks aim to make it easier to track down friends and family members. And the company says it has more renovations in store this summer.

But even as the site is clearing space in some areas, the size of advertising on MySpace’s home page will be growing. Starting today, a new full-page ad will let advertisers dominate the home page where users log on to the service. Movie studio Warner Bros. is the first customer, and it takes over the site’s home page to promote its upcoming Batman movie.

Steve Pearman, senior vice president of product strategy at MySpace, said that the idea was to present a type of advertisement that engages users because it “feels natural and like part of the experience, rather than just another ad.”

Despite considerable buzz and lots of subscribers, social networking sites like MySpace and Facebook haven’t yet lived up to some early expectations about how they will perform as marketing tools. Last year, the research firm eMarketer projected that advertisers would spend $1.6 billion on social network advertising this year; in May, the firm lowered that forecast to $1.4 billion.

The lion’s share of online advertising dollars still goes to search engines like Google, and that’s a segment of the market that continues to grow. News Corp., meanwhile, announced in May that Fox Interactive Media, its unit that manages MySpace, will miss its revenue target of $1 billion by 10 percent for the year.

In a conference call with analysts, News Corp. president and chief operating officer Peter Chernin said some advertisers haven’t grasped the value of social networking sites and admitted that it is a tough category for advertisers to measure.

Some advertisers have dreamed up new ways to connect with consumers through social networks. Coca-Cola, for example, recently launched a marketing campaign on Facebook that lets users give away virtual bottles of VitaminWater. But it’s not always easy to gauge whether such campaigns result in real-world sales.

“It’s still difficult to quantify the economic value of a friend in the social media space,” Chernin said.

Search-based ads are more profitable because Web users actively go to search engines seeking information, said Greg Sterling, principal analyst at Sterling Market Intelligence, a firm that tracks how online behavior relates to real-world sales. MySpace and Facebook, on the other hand, are used more passively.

“Social networks are an important way to reach certain people and do a certain type of marketing,” he said. “But they’re not going to be the cash machine that Google has been.”

Dan Hobin, chief executive of G5 Search Marketing, said his company spends more on search engines like Google.

In certain cases, though, social network advertising is a good fit. One G5 client, a storage-rental company, targeted college students in a Facebook marketing campaign last month. Thanks to the site’s ability to target specific types of consumers, G5 was able to put ads in front of college students in 15 cities.

“They rented more spaces to college students than they have ever rented,” Hobin said.

Though her firm’s research shows that the market will shrink this year, eMarketer analyst Debra Aho Williamson said it’s not a surprise that experimental marketing formats would tend to be the first to go in tough economic times when advertisers are tightening their budgets. She believes a “killer app” for social network advertising may be still on the way.

“We haven’t seen any advertisers raise their hand and say it’s not working,” she said.

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