Show me the Business Model: IDC Swings but Misses

IDC released a new report, U.S. Consumer Online Attitudes Survey Results Part III, that “examines [Social Networking Services] audience reach compared to mainstream services, such as Google and Yahoo!, the demographics of SNS users, and consumer tolerance for SNS advertising compared to online advertising in general.”  The highlight of their press release (titled “Social Network Users Less Receptive To Advertising”) is that more than half of U.S. consumers are now using social media sites, with very high levels of repeat visits and engagement.  But … ads on social media sites have lower click-through rates than on the web at large.

What’s an advertiser to do?  Behavioral targeting is one trend that’s being explored, though privacy and permission issues are legion.

IDC throws out another idea, buried at the bottom of the release:  ads will not be effective “unless publishers get users to do something beyond just communicating with others. If the major services succeed in doing so, they will become more like portals, such as Yahoo! or MSN, and they will come closer to the audience reach of the top services. If that happened, publishers would be better able to monetize their [Social Networking Service].”

This is an odd statement.  There are lots of things that users already do on social networks beyond just communicating with each other.  Five minutes browsing through the Facebook library of more than 33,000 applications reveals many popular activities that are not directly related to communicating with friends.

Complete missing from the analysis is any notion that perhaps the most successful social networking business model won’t be based on traditional forms of advertising involving impressions and click rates.  Social networks are all about engagement.  Once the networks figure out how to package and monetize ways for their advertisers to engage with users – strike that – ways for their users to choose to engage with brands – we’ll be seeing a very different set of metrics emerge.

Meanwhile, smart brands already know that the most effective way to leverage all the traffic on social networking sites is not by talking to the audience, but by listening and engaging with them.