Conversational marketing

Interesting article from The Economist:

Conversational marketing
Word of mouse
Nov 8th 2007 SAN FRANCISCO
Will Facebook, MySpace and other social-networking sites transform advertising?

DEPENDING on your age and memory, it was a week of radically new or reassuringly old developments in the advertising industry. To Mark Zuckerberg, who is 23 and the boss of Facebook, a popular social-networking website, it was the former. Standing in front of about 250 mostly middle-aged advertising executives on November 6th, he announced that Facebook was offering them a new deal. “For the last hundred years media has been pushed out to people,” he said, “but now marketers are going to be a part of the conversation.” Using his firm's new approach, he claimed, advertisers will be able to piggyback on the “social actions” of Facebook users, since “people influence people.”

Mr Zuckerberg's language was strikingly similar to that of Paul Lazarsfeld and Elihu Katz in their book “Personal Influence”, a media-studies classic from 1955. They argued that marketers do not simply broadcast messages to a passive mass audience, but rather that they target certain individuals, called “opinion leaders”. These individuals then spread, confirm or negate the messages of advertisers through their own “social relationships”, by word of mouth or personal example.

Messrs Lazarsfeld and Katz, of course, assumed that most of these conversations and their implicit marketing messages would remain inaudible. That firms might be able to eavesdrop on this chatter first became conceivable in the 1990s, with the rise of the internet. Thus the main thesis of “The Cluetrain Manifesto”, written in 1999, was that “markets are conversations” which the web can make transparent.

Mr Zuckerberg's underlying idea is therefore hardly new. But, says Randall Rothenberg, the boss of the Interactive Advertising Bureau, a trade association, the announcements this week by Facebook and its larger rival, MySpace, which has a similar ad system, could amount to a big step forward in conversational marketing. If new technologies that are explicitly based on social interactions prove effective, he thinks, they might advance web advertising to its fourth phase.

In the past decade the internet has already produced three proven advertising categories. First came “display” or “banner” ads, usually in the form of graphical boxes on web pages, now often with embedded videos. Today these account for 32% of online-advertising revenue. Next are classified ads, now 17% of the total. The bane of many small-town newspapers, these are the postings on sites such as Craigslist. The third, and now largest, category is search advertising, with 41% of the total. Proven though not invented by Google, the biggest search engine, these are the text snippets that appear next to search results for a specific keyword.

Together, these three types of online advertising are already transforming entire industries and businesses. This week IAC/InterActiveCorp, a struggling web conglomerate, said it would break itself into five separate companies, primarily so that its advertising-focused sites—including Ask.com, another search engine, and Match.com, a dating site—could be valued separately from the retailing, lending and ticketing sites. Meanwhile, antitrust watchdogs in America and Europe are scrutinising (but seem unlikely to block) the acquisition by Google of DoubleClick, a big display-ads firm, in response to fears that Google might become as dominant in that category as it is in search ads.

From the point of view of marketers, these existing types of online ads already represent breakthroughs. In search, they can now target consumers who express interest in a particular product or service by typing a keyword; they pay only when a consumer responds, by clicking on their ads. In display, they can track and measure how their ads are viewed and whether a consumer is paying attention (if he turns on the sound of a video ad, say) better than they ever could with television ads. Yet now the holy grail of observing and even participating in consumers' conversations appears within reach.

The first step for brands to socialise with consumers is to start profile pages on social networks and then accept “friend requests” from individuals. On MySpace, brands have been doing this for a while. For instance, Warner Bros, a Hollywood studio, had a MySpace page for “300”, its film about Spartan warriors. It signed up some 200,000 friends, who watched trailers, talked the film up before its release, and counted down toward its DVD release.

Facebook, from this week, also lets brands create their own pages. Coca-Cola, for instance, has a Sprite page and a “Sprite Sips” game that lets users play with a little animated character on their own pages. Facebook makes this a social act by automatically informing the player's friends, via tiny “news feed” alerts, of the fun in progress. Thus, at least in theory, a Sprite “experience” can travel through an entire group, just as Messrs Lazarsfeld and Katz once described in the offline world.

In many cases, Facebook users can also treat brands' pages like those of other friends, by adding reviews, photos or comments, say. Each of these actions might again be communicated instantly to the news feeds of their clique. Obviously this is a double-edged sword, since they can just as easily criticise a brand as praise it.

Facebook even plans to monitor and use actions beyond its own site to place them in a social context. If, for instance, a Facebook user makes a purchase at Fandango, a website that sells cinema tickets, this information again shows up on the news feeds of his friends on Facebook, who might decide to come along. If he buys a book or shirt on another site, then this implicit recommendation pops up too.

There are plenty of sceptics. Some people may find all this creepy, so Facebook will allow people to opt out of sharing their information. Another potential worry is that the analytical information passed on to advertisers may be of poor quality, because so much of what people put on their profiles is made up or out of date. Chris DeWolfe, the boss of MySpace, counters that his research shows that 98% of American MySpace users correctly report where they live. And they tend to report important changes in their lives—such as getting engaged—promptly. This presents great marketing opportunities.

Yet another problem, says Paul Martino, an entrepreneur who launched Tribe, an early social network, is that the interpersonal connections (called the “social graph”) on such networks are also of low quality. Because few people dare to dump former friends or to reject unwanted friend requests from casual acquaintances, “social graphs degenerate to noise in all cases,” he says. If he is right, social-marketing campaigns will descend into visual clutter about the banal doings of increasingly random people, rather than being the next big thing in advertising.