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Actual ad costs often vary from what appears on a rate card as a result of bargaining between buyer and seller. Nevertheless, it’s noteworthy that the Chronicle charges nearly twenty-eight times as much for ads on Yahoo as on Facebook. The price difference is a result of several factors, including the more prominent display space on Yahoo and the problems that social-media sites like Facebook have getting users to see or click on ads. In November 2010, The Wall Street Journal reported that 24 percent of all online display ads in the U.S. now appear on Facebook, but that they are responsible for less than 10 percent of total display-ad revenue.
Why do Facebook ads get such low rates? And what does that mean for the rest of the market? It could be that the standard ways of valuing advertising—that is, by whether it will impel a consumer to buy a product, visit a store, or feel better about a brand—simply don’t work very well in a world where people using social media aren’t looking to be sold something.
In a prescient 2008 AdAge column, Matthew Creamer summed up an issue that runs throughout this discussion: “The Internet is too often viewed as inventory, as a place where brands pay for the privilege of being adjacent to content…. The presumed power of that adjacency has provided the groundwork for the media industry for decades.” Companies today have faster and cheaper access to consumers. “The marketer, once at the mercy of a locked-up media landscape, can now be a player in it,” he adds.
Inevitably, as Creamer notes, the discussion becomes one of how marketing is shifting to “earned” media rather than paid. One analyst defines the distinction this way: “‘Earned media’ is an old PR term that essentially meant getting your brand into free media rather than having to pay for it through advertising,” writes Sean Corcoran of Forrester Research. “The term has evolved into the word-of-mouth that is being created through social media.”
If marketers believe they can reduce their advertising costs by engaging consumers directly, that almost certainly cuts revenue for news organizations. Although some firms are trying to capitalize on the trend by assisting advertisers with their social-media strategies, that is a labor-intensive business that is outside the expertise of many media companies.
And there are journalistic problems that go beyond the economic loss represented by the decline of old-fashioned advertising relationships. A Florida company, Izea, explicitly sets up arrangements so people who blog or tweet favorably about a company can get compensated in cash, travel, or in other ways. The company insists that its writers adhere to Federal Trade Commission guidelines, enacted in 2009, requiring disclosure of “‘material connections’ (sometimes payments or free products) between advertisers and endorsers.”
But a 2010 study by Izea found that many people engaged in this “social media sponsorship” weren’t aware of the FTC guidelines or had been offered compensation without a requirement to disclose it. The survey respondents also priced a “sponsored tweet” from a personal Twitter account at an average of $124 and a “sponsored blog post” at $179—around the same amount a small news organization will pay for a story and far more than an average blog post would ever get from display ads.
None of these ventures comes close in potential payoff to the online coupon craze, pioneered most successfully by Groupon. The company was launched in Chicago in November 2008, offering its customers daily discount deals on services ranging from nail salons to restaurant meals. For the deals to kick in, a minimum number of users must sign up; the system encourages users to spread the word and to take advantage of social media.
In a little over two years, the company expanded to more than 500 markets in
44 countries and turned down a $6 billion takeover offer from Google. Forbes called it “the fastest-growing company in Web history.”