Was Facebook’s misbegotten launch of its Beacon advertising service a case of youthful overreaching, or did it indicate a much deeper problem for the young company?<\/p>\n
The answer to that question may have become a bit clearer last week when Google announced<\/a> its quarterly results. While Google’s business continued to boom, its revenue and profit numbers fell short of investors’ expectations, and its stock price took an after-hours shellacking. During a conference call with analysts, Google’s executives were quick to lay at least part of the blame on the company’s difficulties in making money through the ads it places on social networks. Google has a big advertising deal with MySpace, which requires it to pay the giant social network’s parent, News Corp., nearly a billion dollars, and it syndicates ads on other, smaller networks. So far, the company confessed, with considerable emphasis, it hasn’t discovered an effective away to translate the billions of page views social networks rack up into big advertising bucks.<\/p>\n Said Google’s CFO George Reyes, “\u201cWe have found that social networking inventory is not monetizing as well as we would like.” Jonathan Rosenberg, a senior vice president, admitted, according to a press report<\/a>, that “the company was looking at different formats and methods of targeting to increase the performance of ads it places on social networking sites. ‘We need to find ways to target people of particular demographics that are comparable to the people you might find in The New York Times or a particular publication that you may be familiar with.'”<\/p>\n Cofounder Sergey Brin was particularly blunt about the problem: \u201cWe have a huge amount of social networking inventory, including the MySpace relationship. I don\u2019t think we have the killer best way to monetize social networks yet. We are running a lot of experiments and we have had some significant improvements. But some of the things we were counting on in Q4 didn\u2019t pan out. There were some disappointments there.\u201d<\/p>\n If Google, News Corp., and MySpace are struggling to monetize social network traffic, one can only imagine the challenges facing Facebook, a much smaller company with less traffic, fewer resources, and, in general, a clientele more resistant to commercialization than MySpace’s. In this light, Beacon seems less like a folly than like a deliberate act of risk-taking, if not of desperation. The rich valuation that Facebook has to live up to demands a lucrative advertising or sponsorship model, and Facebook may well have come to the conclusion that such a model inevitably requires a far more intrusive approach to using members’ information and even identities for commercial ends.<\/p>\n The social network has proven a remarkably popular medium. As a business, though, it is a nut that has yet to be cracked.<\/p>\n