Everyone is waiting for Facebook or MySpace to start turning out ad revenue like Google. It is not going happen.
Around this time last year, Microsoft (in)famously valued Facebook at $15 Billion, or $323 per user. This was at a time when their annual revenue was $0.73 cents per user, placing Facebook’s presumed retention rate at 100% and their average user life span right around 400 years. (Oops)
Expectations have cooled a bit since then, but not by much. And that’s bad news for social media hopefuls. Search-engine-like ad revenues are not on the horizon for the social networks for one reason: Search engine marketing ROI cannot be beat by a social network.
Yes, these web 2.0 giants have had exponential growth. Yes they have millions of eyeballs and lots of mindshare online. But you can’t assess the value of mindshare without thinking about what state all those minds are actually in.
People visiting Facebook or MySpace are there to connect with other people. A social networking website is itself an end. It’s not a means. People on these sites have reached their destination. They’ve no momentum going that will push them to leave by clicking on an ad. This leaves the momentum problem up to the advertiser to solve. No matter how you slice it, generating momentum is HARD. (It’s fundamental physics, and in this case the metaphor keeps on delivering.)
That’s what makes search engine marketing so powerful. People visiting a search engine have come there specifically to leave and find something else. They have momentum. They just need a shove and they’re off. Add in the fact that their search terms or keywords provide marketers a context for exactly what kind of shove is needed, and you end up with a marketing environment that may be impossible to beat when it comes to value for advertisers. The money will go to search engine marketing, because in the long run it’s a matter of ROI for advertisers.