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A lot of the recent buzz in the tech sector has been about unsuccessful efforts to monetize online social tools via advertising. Google is losing money on their advertising deal with MySpace. User sentiment suggests that demographic targeting doesn’t raise the relevance of advertising, and clickthrough rates are low across the board.

It’s not that social networks aren’t playing a role in business transactions. Blogger Charles Hudson wrote that he routinely makes transactions whose impetus has been a recommendation from friends through an online social network:

Judging by the activity I see within my own network, there are a lot of my friends using social networks as social Q&A systems to get input, advice, and recommendations in addition to just letting folks know what they’re up to at the moment.

But that activity doesn’t translate into revenue for the networks, and advertisers aren’t seeing the conversions like they do with Google’s AdWords service. So what’s a marketer to do?

A few suggestions:

1. If you’re doing targeted, self-serve advertising on Facebook, get as specific as you can. Avoid stereotyping your potential customers, all women are not interested in weight loss. Many men are not interested in having sex thrown at them all day long.
2. Think about ways of rounding out your campaign to encourage echo chamber behavior. Everyone is after conversions these days rather than brand awareness, so be sure to link your ad to a landing page that drives conversions and also enables social sharing of product recommendations. Even if the user who clicks through to your site doesn’t wind up becoming a customer, you want to enable him to encourage his friends to visit via social mechanisms such as embedding a video in his MySpace page or sharing your landing page on Facebook because it contains interesting content.
3. Consider building something useful — like an embeddable widget or a Facebook application that lets your customers connect with their friends in a way that involves your brand.

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Google is scheduled to make a big announcement tonight and TechCrunch is speculating that it’s related to BigTable — which could be used to enable a scalability solution that competes significantly with Amazon. This comes on the heels of unscheduled downtime for both Amazon’s S3 and EC2 services.

I talked to Emmett Shear, CTO of popular lifecasting service Justin.tv. They use EC2 to handle overflow during peak demand times for their site. He told me that Google would have to significantly undercut Amazon to justify his relocation expense, even with the recent outages.

TechCrunch says that the main competitive factors will be downtime and price, but I’ll add ease of use to that. If Google builds in an application like Scalr that comes standard with its system — or modifies and bundles the open source Scalr with its product — that would be enough to make me take a serious look at Google’s services over Amazon’s.

Update: Here’s what Google announced. This is an Amazon competitor in some ways and not in others. As Mashable put it, the big winner in all of this is Google - and the Python community.

I read Nick O’Neill’s post about SocialAds earlier today with some curiosity. After all, SocialAds have proven themselves to be somewhat underwhelming since the announcement from Facebook on November 6th.

Nick is right that what SocialAds taps into is the online version of Word of Mouth Marketing, plus a bit of measurement as to a particular mouth’s influence. And he’s right that this is cool, and in concept, revolutionary.

But I haven’t seen it work so far.

It might revolutionize advertising, if it starts working.

But it needs to work first. Has Google revolutionized advertising with AdSense? Indisputably. Did Overture think of the concept first? Yep.

I guess that’s my point.

As I was sifting through my Google Reader this morning, three posts came to my attention. Each raised an example of why online communities and the technologies that support them are so critically important to business interests.

The first article was by search guru John Battelle explaining why nobody comments on Google News entries:

It goes to the heart of what Google is not good at: Community. Look at the comment threads on Digg, for example, or Ars Technica, or Boing Boing. Why are there such long, boisterous comment threads? Because we know that the news we are reading there was driven by human beings…But Google News is driven entirely by a computer algorithm. There is no explicit community. No one goes there to engage in community…In short, there are no stakeholders in the Google News community. It’s not a place people go to be social.

In short, if the prominence of Google’s news items were driven by people’s actions and choices, a community would sprout. But where people can have no impact on the outcome, they don’t want to be involved.

Battelle’s argument brings this presentation from TED to mind: [click to continue...]

In a post looking of the recent Beacon rollout (and rollback), Siva highlights one of the key differences between the Google targeting system, and the one that Facebook is building: Google’s is invisible.

Well, for one thing, the Facebook ad revenue strategy is an attempt to leverage personal preferences with more accuracy and influence than Google can. Google can profile most users by IP number and many users by personal identifiers (if they log in to Google to use GMail or some other service). But it’s an imperfect profiling system. Using search history as a proxy for preferences is rough. You need years of data to do accurate profiling and ad targeting. Facebook thinks it can do better.

Of course, there was massive protest to [Facebook's] move. The surveillance/profiling/publicity function was way obvious. Google’s surveillance/profiling function is discreet to the point of invisibility. That’s its brilliance and virtue. Your preferences are between you and Google (or so we are led to believe).

The problem with the Adwords/Beacon comparison is, of course, that Beacon is meant to be inherently social whereas Adwords is really meant to be inherently private. Who else needs to know that you’re searching for Neti Pots? That’s not the point.

Facebook recently added the ability for users to search Pages as well as the usual people, groups, and applications. I have always thought that Facebook’s search feature is relatively useless and ineffective, despite the fact that it is largely the only way to find anything.

VentureBeat seems to think this could be the first step towards really taking on Google at its own game:

It raises a new question about Facebook’s ambitions, as it finds itself the David against the Google Goliath. Will it pull out the ultimate slingshot: a full-fledged search engine for the web, not just the Facebook site?

Good Lord I hope not. The Facebook search experience so far is abysmal, and I don’t have much faith in their ability to pull together anything remotely competitive with Google.

Clickety Clack certainly thinks that Page search is a bad move:

Wow, this sounds so useless– a feature that caters to advertisers instead of users. As greedy as I am, one of the things Google taught me was to be cautious about changing focus to serve advertisers instead of the core users.

I’m not sure I agree there. Searching Pages isn’t useless - it’s part of the core idea behind pages: that they can be discovered and aligned with.

What I’d really like to see is Facebook spend time improving it’s internal search experience, which is I think largely a UI issue. Then maybe, maybe we can talk about Facebook searching the web.

Peter Kafka spoke with Facebook VC Jim Breyer last night, who provided some insights regarding how FB may respond to Google’s OpenSocial initiative. Breyer himself owns 1 percent of Facebook, and his company Accel Partners has an 11 percent stake. Here’s what Kafka had to say:

Facebook would consider joining Google’s OpenSocial platform; Jim said that the company isn’t philosophically opposed to what Google is trying to do, and that its business model isn’t dependent on keeping its social network gated. He also acknowledged that users will want to be able to port their data, networks, connections, etc from Facebook to other networks, and vice versa, and suggested that something like that may be possible within a year. Nothing in the way of specifics here but the message was clear: We’re not afraid of Google/MySpace/Ning/etc, and we’re not going to be “out-opened” by them.

Mashable is reporting that Silicon Alley is reporting that MySpace may become a part of Google’s newly announced Open Social series of APIs.

Open Social is a direct response to the common sentiment that everyone in the socnet space must huddle together to stave off eventual defeat by the space’s newest 800 lb gorilla. If MySpace joins the huddle, the balance of power may shift once again.

The question now is, will our friends in Palo Alto come out to play?

Update: This rumor has now been confirmed.

The potentially game changing news about Google’s Open Social has everyone talking and asking great questions.

What I want to know is, if I’m on Orkut and I’m using an app that lets me throw poop at my friends, will I be able to throw poop at people on Linkedin?

Different social networks have different cultures. Linkedin is all about business. Orkut lets you create a business profile and look for dates at the same time. Will users of applications that are running in different “containers” — that is on different social networks — be able to connect with one another cross-platform?

More important, will the more professional social networks limit the poo-flinging applications that give Kara Swisher such fits?

The barrier between personal/inane and professional is getting thinner by the day. How will OpenSocial and its partner containers react to that? How will they let users control their information?

As expected, Google has announced a set of common APIs for creating applications that will work on multiple networks. Orkut, Salesforce, LinkedIn, Ning, Hi5, Plaxo, Friendster, Viadeo and Oracle have all agreed to participate as partners with Google in this initiative.

We old timers have been through this before, back when Microsoft created a platform that embraced the same HTML that Netscape Navigator could read, but offered “new functionality.”

Wikipedia offers a three point analysis of what might be in store for Facebook:

“1. Embrace: Development of software substantially compatible with a competing product, or implementing a public standard.
2. Extend: Addition and promotion of features not supported by the competing product or part of the standard, creating interoperability problems for customers who try to use the ’simple’ standard.
3. Extinguish: When extensions become a de facto standard because of their dominant market share, they marginalize competitors that do not or cannot support the new extensions .”

As Michael Arrington says: “The benefit of the Google approach is that developers can use much of their existing front end code and simply tailor it slightly for OpenSocial, so creating applications is even easier than on Facebook.”

What’s really interesting is that one of the most visible partners in this effort is none other than Ning, the network led by Marc Andreesen, the cofounder of Netscape. Considering Facebook’s close alliance with Microsoft, there is no shortage of irony here.

Rumor has it that on November 6th Facebook will be announcing some new goodies to the world, specifically the addition of a targeted ad network that extends beyond its own pages.

Nick’s right on the money when he says that this move makes a lot of sense for both Facebook and Microsoft, but calling the death of AdSense may be a bit premature. Here’s why:

Google serves ads on all of its search pages, plus gazillions of individual web sites (now known as the Long Tail).

Microsoft sells ads on all its search pages (which FB will now have access to), and WANTS to have the kind of Long Tail penetration that Google has.

But they can only co-opt that long tail if two things are true about the FB ad system:

1. The site owner makes more money with it (this could be from a higher % of ad money, or a higher CTR, but neither is a given)
2. The UI and visual customization for getting/placing site ads is as good or better than Google’s

It will be interesting to see what happens.

I’m getting a little tired with Facebook-Google comparisons, but I’m going to point to this post anyway, because it does hit on an important point: nobody knows how Facebook will end up really making money, just like nobody knew how Google was going to make money in 1999.

Then again, back in 1999, even Google didn’t have the best business plan in the world – in fact, they didn’t have any at all, according to statements made by the Google founders back in the days. Here’s ZDNet news in June 1999 (my emphasis):

When asked how the company plans to make money, Google CEO and co-founder Larry Page would only say what they won’t do. They don’t want to become a portal. No content. And they want to avoid competing with other search engines to be the browser of choice for existing portals. In fact, Page said Google doesn’t have any real competitors at all, which may be why they don’t intend to do much marketing.

But even Internet companies, which are almost expected to lose gobs of money, need at least a revenue stream, don’t they?

“We have other ways of making money,” said Page. “You’ll see.”

As a quick aside, given how things really did turn out, how bad@ss is Larry Page for saying that?

But now, back to Facebook. Most comparisons with Google are completely invalid. They’re different products and at different stages, and at the moment, they’re in completely different leagues.

But, Google is a great example of how you can’t count someone out just because they haven’t found their working revenue model yet. For all we know, in two years Facebook won’t be using ads to make money at all. We don’t know.

It will be interesting to look back on this post in a few years. Either Facebook will be off the map, or this will seem as silly as the ZDNet article from 1999.

Lee Lorenzen of Altura Ventures is on a panel right now at Graphing Social Patterns. He just said that if Google wants to dislodge Facebook, they should launch a similar network with a .edu-only admission system for disgruntled college students and then pay them $100 each to switch.

What do you guys think about that? Would Google be best suited by spending that kind of money, or should they focus on trying to get a foothold within Zuckerberg’s kingdom?

Goob’s post about how Google should buy Facebook got me thinking. Facebook really isn’t interested in a buyout. But should they be?

Many of the common complaints about Facebook these days stem from a simple problem of scalability:

• the site is slow
• applications spam me and FB hasn’t done anything about it
• FB is slow to respond to claims of harassment
• FB is hard to get a hold of

Is it possible that the company is overstretched? And if so, are the executives in charge really experienced enough business people to expand their team effectively?

I’m not necessarily advocating for a complete buyout here. But if I were in Mark Zuckerberg’s shoes, I would be a wee bit stressed out about putting together a team big enough to keep up with the site’s meteoric growth. A buyout — or at least a major partner — could help with those issues.

And in that sense, Goob is absolutely right. Google would be a great partner.

What do you think? Would Facebook be better able to serve its users by staying independent or bringing in a bigger company?

It’s pretty simple, really. Microsoft sees Facebook as a key to developing a comprehensive ad delivery platform to rival Google’s.

From the Wall Street Journal:

Some industry executives believe the Internet today is facing the sort of turning point that the computer-operating-system sector confronted two decades ago: Whoever controls the technology platform for buying and selling online ads could hold tremendous power over the Internet industry for years to come — much as Microsoft was able to use its Windows operating system to shape the personal computer.

And considering that Google is reportedly hot for Facebook as well, Microsoft is willing to pay a premium to make sure that it doesn’t fall into enemy hands.

From the New York Times:

Facebook is seeking a minimum valuation of $10 billion but interested bidders have expressed a willingness to value it as high as $13 billion, on the assumption that, in the future, Facebook will become a powerful player in the online world.

These numbers might have little basis in actual revenue or profit. Facebook is a private company and does not reveal its income. But earlier this year, a Pali Research analyst, Richard Greenfield, estimated that the company brought in $60 million to $96 million in annual revenue, with no real profit. Much of that revenue comes from a year-old advertising relationship with Microsoft, which places display advertisements on the site.

Mr. Greenfield said the investment price that Microsoft was considering might have more to do with keeping the prize out of the hands of its powerful rivals. “There may be competitive reasons to be connected to this asset beyond what the specific valuation is today,” he said. “You may be paying a premium to keep others out.”

But with Facebook’s disappointing .04% click-through rate, is it really the solution either giant is dreaming of?

Update: Kara Swisher thinks the $10-$15 billion valuation is ludicrous.