News Flash: Social Networking Doesn’t Influence Online Shopping!

Posted on July 6, 2007
Filed Under Web 2.0 Kool Aid |

A recent Jupiter Research report should be of concern to startups and investors banking on the promise of social networking services to drive online commerce. Jupiter Research has found that social networking currently has little influence on online shopping habits. This report seems to indicate that the perception that popular social networks are sitting on unfathomable goldmines may be a mirage.

According to a article on Jupiter Research’s report:

Only 12 per cent of online shoppers quizzed said they buy more than planned as a result of using a social networking site.

The analyst’s US Retail Consumer Survey, 2007 also found 53 per cent of online shoppers go straight to the site they want to buy from, rather than being directed there by a social network site. Just three per cent said they use blogs as a route to online shops.

Jupiter Research analyst Patti Freeman Evan said shoppers are looking for fundamental information when researching products online - rather than entertainment or social interaction.

She added that despite the attention on social networking from a branding and advertising perspective, sites simply don’t offer the convenience and efficiency of retail sites.

Obviously, this report addresses social networking’s impact on online shopping more than it does advertising, however I believe that there are some similarities.

At first glance, social networks seem to be the perfect platforms for delivering advertising and driving commerce. The amount of demographic and behavioral data that is collected on services like MySpace and Facebook provides these companies with detailed insights as to who their users are, what they’re interested in, etc. This is the type of data that marketers will kill for. In addition, the social aspects of the service are enticing because advertising campaigns theoretically can incorporate viral/word-of-mouth components. This is the certainly the basis for much of the “social shopping” hype.

So why are the realities of the market apparently different than the ones many analysts and Web 2.0 proponents expected? Two thoughts:

Does this mean that social networks do not have any capacity to drive real business? Of course not. I believe that there are a number of ways that social networks can be used as effective advertising platforms, however it will require a massive shift away from the traditional advertising models that are being used now. I will save some ideas around this for a possible future post, however I will give this hint: effective advertising campaigns on social networks will have to deliver some tangible benefit or reward to users that makes them more receptive. It’s the only way to attract attention and cut through the clutter.

Finally, some Web 2.0 proponents will point out that MySpace is reportedly generating in excess of $25 million each month in revenues and that Facebook is reportedly on pace to generate $150 million in revenues this year, so my comments here are irrelevant. These numbers aren’t too shabby, however when you look at the revenues and compare them to user and usage metrics, it’s clear that their revenues are more a reflection of the fact that these social networks have significant volume and are the most two prominent advertising platforms in the social networking space than they are a reflection of significant per-user monetization. The rumored CPMs these services charge and the rumored CTRs that advertisers typically see on them are not all that impressive (in fact, they’re downright horrible). If social networking is to assume its role as one of the greatest one-to-one advertising platforms ever known, this will have to change.

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13 Responses to “News Flash: Social Networking Doesn’t Influence Online Shopping!”

  1. Michael Camilleri on July 8th, 2007 1:35 am

    One thing I don’t understand with advertising on the web is why do we only want to say that advertising ‘worked’ if the user clicked on it? Is it only because this is really easy to measure?

    I believe in the power of ‘passive advertising’ (I’m not sure of the proper jargon) on social networks but I think you’re right that ‘active advertising’ (that is advertising that is only considered successful if the user clicks on something) is unlikely to be that successful.

  2. Drama 2.0 on July 8th, 2007 1:50 am

    I didn’t mean to imply with my mention of low CTRs that the only measure of success is click-throughs because different advertisers have different goals. Regardless of the goal a particular advertiser has, however, success still depends on targeting the right people and delivering advertisements to them at the right time/location. Some advertisers look to directly generate sales through advertising while others are more focused on “branding.” In both cases, if the advertisements are “ignored” by most users, neither goal is achieved. I believe traditional advertising (banner ads, text ads, etc.) are not particularly effective in the social networking environment and that it will require much more innovation and integration to create successful advertising campaigns on social networks.

  3. Michael Camilleri on July 8th, 2007 5:02 am

    Do you think they’re less effective than traditional advertising in print?

  4. Drama 2.0 on July 8th, 2007 10:56 am

    I don’t have much experience with print advertising, but I will note that total spending on print advertising has been declining and this coincides of course with a strong increase in Internet advertising revenues. This is probably a reflection of both advertiser dissatisfaction with the results generated by print advertising and the natural shift of some advertising dollars to the Internet.

    That said, I think advertisers can’t and won’t look at social networks and say “They may be ineffective, but it’s no different than our print advertising campaigns.” At some point, advertisers will need to see results, so social networks that can come up with better ways to leverage the strengths of social networking as a marketing platform will be better able to ensure the growth and success of their businesses. Right now I think most advertisers understand that a lot of consumers are using these services and they’re experimenting with social network advertising, but long-term they will need to be satisfied that they’re not just throwing money away. New advertising platforms get a little bit of leeway while everybody looks for effective models, but if those models can’t be found, it will be problematic for the MySpace and Facebooks of the world down the road.

  5. Omar Ismail on July 9th, 2007 11:23 am

    Interesting post. Though I do think it’s not 100% complete. You’re examining only a few forms of advertising on social networks (the “traditional” ones), and fail to mention the other major form of advertising. What I actually consider to be the main and most useful marketing model, that is already being widely used by many companies.

    Official groups. Working in-band within the social network’s platform does precisely what you’re talking about with those 2 criteria. The people that come to the group are obviously the right target since they’re seeking you out, and it’s definitely the right time since again, they’re seeking you out on their network of choice. The marketing becomes the very social interaction that the site is about.

    Companies are already doing this, and I imagine its actually pretty successful for the ones that are doing it properly. As for Facebook and MySpace the way they could monetize off of it is by offering premium sponsorship. I know that Facebook has specified sponsored groups that get

  6. Drama 2.0 on July 9th, 2007 11:41 am

    I agree that official groups are a step in the right direction, but they’re most useful for entities looking to brand (as opposed to entities looking to sell). The biggest question, however, is how these entities will measure ROI from initiatives like this. Is ROI determined by how many people join the group, how many participate, how often they participate or the types of interactions that take place within the group? MySpace is an interesting case study. Although a “profile” is not technically a group, many brands have profiles on MySpace with a considerable number of “friends.” If your company has 50,000 friends, can you tie that to higher sales, increased brand awareness, increased customer loyalty, etc.? From what I have seen, the level of interaction on MySpace profiles and groups created for brands does not seem to indicate that these are becoming active hubs for large numbers of people. Large numbers may join, but fewer actually “stay.” Therefore, without something compelling to augment these groups, I think brands will find that these are less-than-ideal destinations to reach their customers and “fans.”

    Over the long haul, advertisers will need to see tangible results that their initiatives on social networks are helping them achieve their goals, whatever they may be. Social networks need to make sure that they’re invested in the success of their advertisers and can help them measure success.

  7. Omar Ismail on July 9th, 2007 2:22 pm

    Good points. Profiles and groups are definitely more about the brand than selling an individual product or service. And then it comes back to the problems of traditional advertising of how do you measure the success. There’s the great quote I heard once about television advertising: “I know that my ads are reaching half my audience, I just don’t know which half”.

    If you have ideas on how to promote an individual item in a trackable way through social networks, that is actually reasonable and not annoying, I’d be quite impressed.

  8. Jay (living in First Life) on July 9th, 2007 4:16 pm

    Drama, this is your most relevant comment:

    That is, word-of-mouth recommendations are so effective because people are not bombarded by them on a perpetual basis.

    The reason standard advertising (TV, direct mail, radio, etc.) is losing its luster is that we’re tired of it. We see it all the time. We’re bombarded with marketing messages. This is why word-of-mouth works. Once every 3rd person is being paid to recommend something to you or sending you 100 invites to join their online social shopping network, you’ll get annoyed and say “F- it, I’m tired of this S(#@”.

  9. Eran on July 11th, 2007 8:29 am

    Wonderful post.

    I believe that most of the problem with the social network sites is that they do not offer too much value besides vanity. For example, how many friends I have, how many comments were sent to me, etc. The dilemma is that even though you may receive word-of-mouth recommendations, more than half of the people recommending are not someone you would ‘trust’. In fact, why should you, do they actually know so much about you to the point of having proper suggestions to your purchasing habits?
    I believe that the power of the people comes as was mentioned “the right targeting and the right location/timing”. If allowed, I will add a third…which is “inherent value”. We have to actually see a value proposed by the others (with the correct target and timing). It does not help me for someone of my friend’s list to recommend something, that does not provide me actual value.

    Joost mentioned: “it should be able to make money even as it shows you fewer ads than on TV. The ads it does show you, however, are likely to be ones that either you want to see or that some advertiser is willing to pay a lot to show you.” This supposedly will give the users more value.
    May be read entirely at:
    [I am new to blogs/comments/posts, if I am not allowed to provide outside links, please let me know. But please do not bar me from future commenting]



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