Kudos to Jeremiah Owyang for continuing to ask the difficult questions around the widget/social media economy in his recent post and again today on his panel at the Graphing Social Patterns West conference.
Before getting down to business I just have to ask: Why all the posts with pictures of the hotel and pool? Yes, it's sunny and beautiful here but you can find the same pictures on the hotel website, plus we're all indoors, not at the pool. But I digress.
First, I do agree with many of these challenges as described at a high level - 1) it's a new space and the metrics are not yet established and consistent, it's definitely something I'm working towards on almost a daily basis in order to deliver real long-term value to our brand advertiser clients 2) immature market - by definition given the age of the industry and 3) difficult to monetize - certainly many are finding this challenging.
What I don't agree with:
1) "advertising is not an effective way to monetize in social networks" - while many are failing because the user attention is not there for traditional display or ad sense ads, advertising done as part of the experience and/or entertainment content itself makes sense - and we're seeing not only the adoption but the detailed interaction with these branded widgets. Nobody wants to see a full blown commercial in the middle of watching a movie, but remember what E.T. did for Reese's Pieces. It just has to be executed well.
2) CPI as bastardization. This comment was a bit of a head-scratcher for me. I tend to give users a lot of credit for being rational actors - they use or take what they like, and get rid of what they don't. You can't say on the one hand that there are low barriers to entry, the space is cluttered with clones and there are very few high value widgets, and then say that one of the few effective ways of breaking through that clutter is inappropriate. If users don't like the widget they can say "no thanks" or if they got it wrong then they'll delete it. Over the long term a bad user experience can't be overcome with a CPI strategy. If Jeremiah is simply saying that VC money is funding the promotion of bad apps, I won't argue with that; I'll just say that it can't go on forever and isn't the foundation of a real business.
CPI makes the most sense to me for two reasons: The first is context - the biggest challenge for advertisers (whether brands or app/widget marketers) is reaching people at the right time - reaching widget users at the time they are updating their pages with new content is exactly the right time to present them with additional choices. The second is a bit more difficult to explain, but brand advertisers who are used to CPM buys still want to get those impressions, but they want them on user profile pages, and they want to pay for and receive them over a matter of weeks or months, in conjunction with a broader ad campaign. To get those profile impressions and meet that criteria, they need to secure installs via CPI. Otherwise it's anyone's guess what they'll get. The media has to be accountable, i.e. what you budget for is delivered, in the time period designated.
3) Low Utility. Jeremiah says: "I’m trying to think of a widget that provides business utility, or one that improves my life other than casual communications or entertainment. Reminiscent of the web in the mid 90s, we’ve yet to see the business value."
I don't disagree there is enormous opportunity in the area of business value, but what drives virality and the enormous popularity of MySpace and Facebook is, as Ari Paparo
so nicely put it, the "make my day" factor. Not the business utility. While I personally, like Jeremiah, love a great new networking or business tool - this misses the point of what the majority of social network users are looking for in the majority of apps and widgets - fun and escape in conjunction with friends.
4) Disposable. I suppose this depends on your point of view - certainly it's more efficient for developers to build an app or widget with staying power - but along the lines of points 1 and 3 above, when it comes to brand advertiser widgets a relatively short life might be entirely appropriate for the campaign objectives, and still represent a really fun and entertaining and valued experience for the person using it. Objectives really are the key here - an advertiser might build a tool for long-term dialog, but something entirely different to drive awareness of a new product - matching the vehicle to the goals is crucial.
Jeremiah, thanks for chatting with me today and asking my honest opinion. I certainly appreciate your insights and perspective. Maybe next year they'll hold the conference in August, by the pool.