Advertising dependency for free social media sites makes for risky ...

When was the last time you clicked on a Facebook ad? Option A: You can?t remember. Option B: You never, ever click on any of the ads. Option C: Does anyone actually click on those ads?

Apparently people do, as 85 percent of Facebook?s revenue comes from advertisements ? the other 15 percent is from selling virtual goods.

There are two ways in which such statistics look good. Either a company is very good at targeting a niche market, or it is not so good but has a huge audience. Facebook is in the second category. In fact, because of the current low success rates of target advertisements, Internet businesses that provide free services have no alternative for survival but to become big enough so that their size can compensate ? unless they plan to subsist through donations, as Wikipedia does.

Two questions then arise. First, since there obviously isn?t a market for a lot of big social media websites, why is it that we keep seeing new social websites popping up? After all, people have to eventually stop looking at pictures of friends or cat videos and be productive. Second, why is target advertising so difficult that Internet companies can?t afford being small?

The answer to the second question is a paradox. On one hand, everyone would be delighted to hear about a product they would enjoy having, a new band they would love to listen to or a play they would like to see. On the other hand, most people are obsessed with privacy, refraining from giving personal information to this or that company. Although privacy is certainly a right, companies can?t provide more accurate ads without more precise information. There is no way around this. Not until artificial intelligence tools are so advanced that user preferences can be inferred by interpreting jokes and comments.

The first question is more obviously answered: There are a lot of investors, with no better idea about where to put their money, who are afraid of missing the ?next big thing.? That?s why we have Path, Tumblr, Pinterest and many other social media venues whose purposes intersect, and most of whom we don?t even hear about. Their business model? Advertising. Which one is going to grow enough to profit from advertising? Place your bets.

Apparently, there is no shortage of entrepreneurs who believe they have the perfect alternative to Facebook or a shortage of investors to back their startups. But we already have enough tools for connecting, liking and sharing. It is time for entrepreneurs and their funders to think of something else. According to recent reports about decline of time spent on and multi-week breaks from Facebook, some Internet users already are.

A version of this article was published in the Monday, March 25 print edition. Marcelo Cicconet is a staff columnist. Email him at opinion@nyunews.com.

Source: http://nyunews.com/2013/03/25/cicconet-11/

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