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AOL's Falco Gets Something Right

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In a memo to employees aimed at addressing fears of an AOL/Yahoo tie-up, AOL chief Randy Falco today penned a truth for social networks:

But despite drawing large, engaged audiences, other social networks have not been able to make the experiences relevant to users and marketers alike.

That right there is the reason I’m hostile to most social networking and social networking-related startups that plan to rely on advertising: They’re depending on marketers to foot the bill while at the same tailoring their content to users that are generally hostile to or uninterested in marketing.

Falco believes that AOL’s future combination of Bebo and Platform A will solve this problem. He’s wrong. Buying more companies with cooler widgets or more users isn’t the direction the Internet is heading. We no longer need portals because we now can navigate the web for ourselves. The real opportunity for a startup in social media is making social networks relevant for advertisers — and making advertisers see social networks as an essential forum for their messages.

It might start with a technological solution, such as the one from startup ScanScount, which is trying to isolate relevant content so advertisers feel comfortable placing their brand on social and user-generated media sites, but it won’t end there. These sites, no matter how useful, need to make money. The company that figures out how to do that will be the Google of Web 2.0.

13 Responses to “AOL's Falco Gets Something Right”

  1. Stacey Higginbotham

    @Scott, I’m saying that the existing modes of advertising don’t work for social networks and the prize will go to the company who figures out how to make advertisers comfortable on social networks. I’m not assuming the model in place for AOL and GigaOm will work there.

  2. I have created and run the social network ranks 17th in the world in terms of page views (Comscore February 2008). We are profitable and expanding. Our way to monetize our audience is through “haute-couture” advertising. That means working with advertisers to create unique conversational marketing operations on our social network. It works for Procter & Gamble, Coca-Cola, Unilever, Nike, Puma, Adidas, Apple, Johnson & Johnson, Nokia, etc … We are profitable because we believe in listening to our advertisers and building with them operations that enhance user experience. The integrated social webagency is the solution

  3. For larger organizations like AOL Tim Warner to appeal to larger advertisers in the social media space you are 100% correct – the inventory must be relevant (and engaging)for advertisers and users.

    I frequently discuss social media advertising on my blog. Readers of this post, likely will find the content relevant.



  4. Both Falco and you are assuming that the same media strategy that works for non/semi-social properties (e.g. AOL and GigaOm) is also right for social networks. The market seems not to bear this out. The CPC and CPA worlds may well dominate social networks permanently. If social networks have cost structures and valuations that match performance-ad eCPMS, only the traditional brand advertisers will be frustrated.

  5. We’re (Chitika) doing some very interesting work right now with targeting ads. We’re leverages our large pool of advertising and PRECISELY matching ads with end user self selected interest at that particular point in time. Effectively we’re providing personalized ad content through our Premium Listings ad units and so far the results are terrific.

    jeff at chitika dot com

  6. The opportunity for social networks is not in coming up with clever ways to insert videos ads, banners or PPC for that matter. That’s 1.0 thinking. The opportunity is in blending the needs of the advertiser and the user to provide true value to the user that also markets a product or service. That’s 2.0 thinking.

  7. Stacey Higginbotham

    John, I think they’re in a highly competitive space, but if they can win corporate clients, rather than startups hoping to make a buck from advertising, they’re betting on a familiar business model.