When YouTube, the darling of the social media revolution was acquired by Google, many hailed it as valuable advertising partnership, which would see Google AdWords and Ad Sense programs propagated across the site. This approach was further cemented by the agreement signed between Google and News Corporation which will see the search giant deliver at least $900 million in ad-revenue over 3 ½ years to News Corporation for the right to broker advertising appearing on MySpace.

While applying a proven ad revenue model to a social network might be of benefit to the industry in the short term; a lack of innovation in advertising programs will mean the end of advertising within social media environments.  To understand the issues with the current advertising model and how they apply to social media, it is important to understand what makes social media different.

First, social media is based on the actions and perceptions of the community as opposed to its individual members. This establishes a new relationship between advertisers and users.  The old model for marketing and media was one of persuasion and isolating consumers. The new model is highly interactive and communal. While new models of marketing are emerging, traditional principles such as word of mouth are essential in social media. Sean Moffitt, President of Agent Wildfire provides an ellocuent view on the importance of word-of-mouth. “Word of mouth is marketer’s oldest tool and it’s 50% more important than even 25 years ago because of 3 shortfalls - consumer trust, time and attention and 3 abundances - product choices, media clutter and connected social circles”.

Second, the advertising revenue model is no longer tied to the ‘page paradigm’ (number of pages viewed or searches consumed) but the degree of user interaction. This is causing media owners to grapple with the challenge of monetizing their sites, as their ad sales teams and rate cards do are no longer relevant in the social media environment.

Third, social network sites will reach maturity quickly – starting to fall pray to a new kind of spam email, a legacy of the current advertising model. Social media sites are more susceptive to spam given they exists as an open network, relying on referrals, networking and topic associations. The issue of email spam in social media sites is magnified by solutions such as FriendBot.com and FriendAdder.com that can automatically send mass friend requests to MySpace users. While these issues are not unique to social media sites they will have an impact on the level of consumer trust and engagement.

Case in point, both MySpace and Facebook lost visitors in September, according to Nielsen/NetRatings. The number of unique U.S. visitors at MySpace fell 4% to 47.2 million from 49.2 million in August, and the number of visitors to Facebook fell 12% to 7.8 million from 8.9 million. Although this could be attributed to seasonality, there is a recognition the current model of advertising on social networks is not sustainable. “MySpace, ByeSpace?”, an article published in the Wall Street Journal supports this conclusion, showcasing the experience of a MySpace usersRecognising this change, YouTube has recently launched a new ad product which leverages the participatory nature of the site. The Participatory Video Ads (PVAs) is a regular video spot but with all the community features enabled, so that YouTube visitors are free to comment, share, embed and “favourite” the video. The first PVA launched on the site, promoting Paris Hilton’s new album, has been viewed nearly 80,000 times and received 415 comments. Its rating, however, is a mere two stars out of five.

Will the rise of social media bring about a revolution in online advertising? Without a doubt, more of an evolution. To embrace the challenge of advertising in social media, agencies will have to rethink their current approach to media planning and buying, publishers will have to take a more consultative role to sales and, clients will have to be brave and understand creative and media costs might will due to the bespoke nature of the communications required.

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