How to monetize “air”

So, letting others dissect the Tribune bankruptcy (foreshadowed here last week), I’ve been thinking about how social networks will impact the online advertising business, particularly in connection with yesterday’s discussion of the Information Valet Project.

A while ago, I had this to say about marketers transitioning in their pursuit from eyeballs to friends:

Publishing stuff online in order to generate “eyeballs” and then selling ads to folks interested in reaching those eyeballs is pretty much yesterday’s model. (Actually, it’s a previous-centuries model that may have lost its final bit of momentum on 9/11—an event “important enough to find” just about everyone long before showing up anywhere in print, and one that created new imperatives for people to reach out and connect with each other.) A community-centered news enterprise that exploits the power of social networking will tend to generate “friends” rather than “eyeballs,” and friends—customers with loyalty—are what advertisers are looking for.

And, I quoted from a Wired piece by Chris Anderson about the economics of giving things away free (content, for example, because there is plenty of it) in order to make money:

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities—and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later.

Clearly, reputation and attention will follow friend relationships in social networks, and friends will have far more value than standard display advertising in print or online. To understand why, find 45 minutes to watch this video featuring Charlene Li speaking at Google about social media. (If Google want to hear what she’s got to say, so do you.)

Li reminds us that while advertisers just throw stuff at us to see what will stick, friends have conversations. She cites plenty of examples, such as Oracle’s homepage campaign “Oracle Listens,” and Comcast’s seeking out customers mentioning problems with them on Twitter, and stepping in by asking “What can we do for you?” She notes that the value of a friend gained by a business is huge, when you consider the cost of customer acquisition and retention, the lifetime revenue during the relationship, and the referral value of a loyal customer.

“Social networks will be like air,” she says, and lists four components of such networks (with quotations from this blog post by Li):

  • Universal identity — “First let’s get at the real problem—I want to be able to maintain and control my identity, and when needed, to make them connected between services. And I think that the way to do this is a federated approach…” This is a problem also being tackled by Information Valet and by Information Card. Li suggests that the universal keys can be e-mail addresses and mobile phone numbers.
  • Open (and single) social graph — “In a world of a single social graph, social networks will have to compete on the basis of creating the best experience for its members—not because it controls a unique social graph.”
  • Portable applications that tap into the social graph—not just the relatively trivial recreational communication that dominates Facebook, but, for heaven’s sake, shopping: “The biggest hole and opportunity, IMHO, is shopping. I research and buy things online every day, and with rare exception, these activities take place outside of Facebook. Facebook Beacon brings some of the information into News Feed, while a few shopping-oriented applications like StyleFeeder have potential. But by and large, social networks don’t figure into my shopping experiences. But it could, and in a very significant [way].”
  • Personal CPM — the business model of the future for social networks, and potentially for news organizations that awaken their slumbering potential social networks. Demographics is how marketers have always targeted eyeballs. But in the future, remember, reputation and attention are scarce and have value, and those who have it will be able to monetize it. “Everyone is a marketer,” Li says. “Today’s advertising models don’t work on social networking sites—that’s because simply targeting better on profile or social graph details is still the same old media model of CPM and CPC pricing. What’s missing is marketing value based on how valuable I am in the context of my influence.”

To me, this line of thinking starts to fill a few of the gaps in the InfoValet model, especially (a) how users get rewarded for their participation in the system (I’m envisioning a kind of PageRank system that quantifies one’s Personal CPM in a way that can’t be gamed by blindly clicking on ads), and (b) how advertisers can benefit by more efficiently finding “friends” and having “conversations” rather than advertising the old-fashioned way.

A few more Li links:

Now, if Li is talking to Google, what’s Google doing in this space? Via a Jeff Jarvis post last week, here’s a slideshow that could take another 45 minutes out of your life. (At least, that’s how long I spent studying it.) It’s a fascinating look at all the ways Google makes money, or plans to make money, but the operative part for this discussion is OpenSocial, on slide 11. OpenSocial is simply a way to build program applications that will work on multiple partnering social networks. Currently participating networks have about 700 million users, but don’t include Facebook, which is going its own way for now. But, the camel’s nose is in the tent—expect Google and Facebook to begin developing competing ways to match marketers with “friends.”

All of this leads me to wonder whether InfoValet should be thought of as a social network. It certainly envisions solutions related to—and in fact aiming well beyond the limits of—each of Li’s four social network attributes. It took 2 days for a bunch of brainiacs convened at Mizzou to come up with some unwieldy definitions of InfoValet. It would be a whole lot easier to be able to say, “InfoValet is a social network consisting of trusted connections between creators, consumers and marketers in a way that allows all of them to make a little money.”