GenuineVC David Beisel's Perspective on Digital Change

February 8, 2007

Last Saturday I had the privilege of participating on a panel at the Harvard Business School Venture Capital and Private Equity Conference entitled “What’s Next: What will be the next hot sectors for venture investment?” All of the panelists were asked to bring a slide highlighting a “hot” VC investment sector for the upcoming year. I chose to talk about the broad theme of “social media monetization” as an upcoming trend in the coming twelve months.

With the rise of social media – now accounting for over 5% of internet visits and growing – we’ve seen investors continue to pour money into new spins on social networks. Vertical social networks and uniquely branded social sites have sprung up from both startups and from established media companies. The primary goal of these to date been about acquiring audience, and leveraging the network effects which result from an increasingly growing user base. But I think we’ll see a shift of attention in the coming months (which has already begun) towards startups focused on and about generated revenue out of these media assets. While many of the strongest players have been paying attention to it for well over a year, I suspect that many of the second and third tier social media sites haven’t been focused on monetization to date. But with the increasing impatience around delivering tangible results, a refreshing turn towards building media businesses not just media properties will follow. And with this move, there are opportunities for companies to facilitate in that monetization process for those sites which will look for partners to help them on their own.

In my quick talk, I identified four categories of social media monetization:
Behavioral-based advertising networks – matching targeted ads to people based on who they are rather than page context. An advertisement is effective if it is relevant to a specific person, regardless if that ad isn’t matched to the current page (which is difficult to discern contextually in many social sites given the nature of the content).
Syndication advertising widgets – facilitating the tools to spread marketing messages in a distributed web. The current use-cases of branded badges, contests, and music video promotion are just the beginning of widget advertising.
Social shopping/commerce – providing consumers with rich social context and relevancy to the purchases which they are making with inherently monetizeable content.
Integrated mobile platforms – incorporating medium with embedded billing mechanism. While consumers are reluctant and to pay for services on the web, they’ve repeatedly shown a willingness to pay for content on their mobile (ringtones, premium SMS, etc.). There is further opportunity to marry these two worlds working towards the goal of monetizing the tremendous traffic online.

While I had been spending a lot of time in (and blogged about) each of these individual areas in the past year and continue to do so (in fact, note that Masthead Venture Partners is an investor in Tacoda, an online behavioral advertising network; ExpoTV, a social commerce service; and Intercasting, a mobile social networking platform), it wasn’t until going through the exercise thinking about articulating a broad trend did I come to the insight that all of these groupings fell under the same broad theme. And it leads me to ask to myself… what other categories of social media monetization are or will emerge?

  • http://www.johndemayo.com John DeMayo

    “Behavioral-based advertising networks – matching targeted ads to people based on who they are rather than page context.”

    This would normally be called demographic-based advertising, I believe. Behavioral-based advertising generally refers to an action someone has taken in the past (i.e. visited a specific site or searched on a specific term).

  • http://newspeedwayboogie.blogspot.com/ A Weissman

    See also Lotame (www.lotame.com) for another take, one that relies on a user’s actions and interests to better serve publishers and advertisers.

  • http://www.Tech-Surf-Blog.com Graeme Thickins

    I think this is a great theme, David. And I look forward to following along with you on it….

    cheers,Graemewww.Tech-Surf-Blog.com

  • http://worcester.typepad.com/pc4media peter caputa

    I’d say that there is potential to apply any business model to it. Anwhere people spend hours hanging out, like social networking sites, becomes a fertile ground. You just happened to pick a few that you obsess over: e-commerce and mobile. And of course, there is no better place to monitor interests through monitoring behavior on a social network (ie hip hop, male, xbox). So, behaviorial targeting will rise and fall w/ social networks sharing “anonymous” date with companies like Tacoda.

    I don’t see widget syndication as a business model, though. People are going to flock to social networks that enable the use of the largest # of widgets. If a tax is applied to that or they must be approved, it’ll slow adoption. And people will go elswehere.

    I do think you are missing a lot of different business models, though. What if facebook/jobster start driving significant job apps? What about classifieds? What about marketing services sold through b2b social networks? And of course, you know I can’t leave a comment without talking about the potential to use social networks to advertise events and augment the value of event sponsorships.

    I don’t see how categorizing business models for social networks is going to help. The potential is endless. The key is whether a social network can scale sign-ups and revenue at the same time. The ones that can do that are the ones I’d fund.

  • http://joannapenabickley.typepad.com Joanna Pena-Bickley

    Some of the best data on the growth of social networks is coming out of the widget startups. Help me identify the reach of branded widgets by commenting or continuing the conversation at:http://joannapenabickley.typepad.com/on/2007/02/on_widgets_not_.html

  • Suresh Vobbilisetty

    Checked out ExpoTV. Two problems.

    1. Granularity.2. Context.

    Granularity: If I am shopping online (and Google is my starting point), the first thing I would like to know about is the next stop and not necessarily what’s available at that stop (that will be important too). Not all toy selling online actually make those toys.

    Context: If I am shopping at the retail outlet and am standing in front of a toy down in the toy lane, the best medium I have available to me is a mobile phone, and not a computer (may be here is where you combine your idea of mobile phones as a medium to distribute the ExpoTV content to a precise location!!).

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