The New York Times “MySpace Might Have Friends, but It Wants Ad Money” reports on the difficulty the three major social networking sites (MySpace, Facebook and Bebo) are having in monetizing their eyeballs. Sounds like the dot-com bubble all over again. Google (GOOG) commenced a three year $900M ad deal with MySpace in 2006, and has been disappointed with the results.

Since News Corp. (NWS) acquired MySpace three years ago, users grew from 16M to 118M worldwide. Jeff Berman, MySpace sales and marketing president, estimates revenue at between $6 and $7 per user per year. Outside analysts estimate the current fiscal year revenue to be $755M, short of News Corp’s $1B goal. Annual revenue growth estimates range from 25% to 50%, with the company being more optimistic than outside analysts.

The social networks cite advantages such as hypertargeting and social ads. Advertisers can select user homepages expressing an interest in their target area or that meet their detailed demographic profile. User homepage profiles by their nature provide advertisers with a wealth of selection criteria. Facebook’s social ads are passed to “friends” of the advertiser’s targeted users. The social ads imply a “friend’s” recommendation. Even with all this targeting, advertisers are concerned that the ads don’t catch any attention.

The social networks fear not that “innovation” is approaching the point of annoyance. Most ads are the basic Yahoo (YHOO) type display headers. Facebook mixes social ads with your “friends” column. Users have trained themselves to ignore these. Now MySpace will introduce splash pages to advertise movies.

I suggest an alternate ad model. Each user would select a sponsor for their homepage. The sponsor becomes a company, brand or product that the user believes in. This creates a positive relationship between users and advertisers. The users should also be able to control the level of ad intrusions, from watermark to various size displays. The stronger the relationship, the bolder users will display ads.

Advertisers can enhance their sell to users (publishers) through stunning photography, animation, games and other special effects. Of course, users would only be able select sponsors from the companies that pay to participate. I further suggest that advertising cost should not be based on displays or clicks, so companies don’t limit their exposure. You do not want to tell a boy that he cannot be sponsored by Corvette because GM reached its spending limit.

The future is eyeballs picking their ads rather than advertisers picking their eyeballs. This will give advertisers a true picture of their reach.

No Disclosures.

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Michael Steinberg

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