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I’ve been quoted in the latest issue of BusinessWeek about the future of MySpace’s revenue-generating abilities.

From the article:

Social networks have put most of their faith in advertising. But people don’t go to MySpace to find products or information. Users are so engrossed with talking to friends and posting party pictures that they pay little or no attention to the ads. So ad rates on social networks are much lower than prices for search keywords or traditional ads–$1.86 per thousand views for MySpace, Merrill Lynch says. That compares with as much as $30 per thousand for prime-time TV. “Standard display ads–and I don’t care how much targeting you do–it’s not working well,” says Ian Schafer, president of online ad firm Deep Focus.

Let me clarify that.

The standard ads on social networks are not working well if you measure them on a click-through basis. I do believe that there is a lot to be said for having a very contextually and behaviorally relevant message appear in the right place at the right time in front of the right person. But click-throughs on these ads are poor, and if that’s what you deem a “success” then they definitely do not “work” well. However, the jury is still out on lifts in awareness, intent, and favorability generated as a result of being exposed to these ads. I’ve seen display ads, placed intelligently, even on social networks, positively affect these lifts.

But like I said, they’ve got to be placed intelligently and strategically to get the most impact. And knowing how to do that can only come from learning, and experimenting.

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Lots of stuff to analyze here, but in a rush…heading out to ClickZ’s 10-Year Anniversary Dinner and Awards Ceremony.

Here are the details, from Facebook’s release (interesting…no Zuckerberg quote):

Facebook and Microsoft Expand Strategic Alliance
Two companies expand advertising deal to cover international markets, Microsoft to take equity stake in Facebook

PALO ALTO, Calif., and REDMOND, Wash. — Oct. 24, 2007 — Facebook and Microsoft Corp. today announced that the two companies would expand their advertising partnership and that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States.

“We are pleased to take our Microsoft partnership to the next level,” said Owen Van Natta, Chief Revenue Officer, Facebook. “We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to nearly 50 million active users of Facebook.”

“Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only for our two companies, but also our collective users and advertisers,” said Kevin Johnson, president of the Platforms & Services Division at Microsoft. “We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.”

Facebook continues to experience strong growth both in the U.S. and international markets; almost 60 percent of Facebook’s users are outside the U.S. With an average of 200,000 new users registering each day, Facebook continues to be one of the most-trafficked sites on the Internet.

On Aug. 22, 2006, the companies announced a U.S.-only strategic alliance that named Microsoft the exclusive provider of standard banner advertising on Facebook using Microsoft’s digital advertising solutions and the Microsoft® adCenter platform. In early 2007, the terms were extended to 2011.

About Facebook

Founded in February 2004, Facebook is a social utility that helps people communicate more efficiently with their friends, family and coworkers. The company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people’s real-world social connections. Anyone can sign up for Facebook and interact with the people they know in a trusted environment. Facebook is a part of millions of people’s lives and half of the users return daily. Facebook is a privately-held company and is headquartered in Palo Alto, Calif.

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On the same day that Interpublic signed a non-exclusive deal with word-of-mouth marketing firm BzzAgent, another story ran about how consumers are becoming increasingly wary of fake reviews and testimonials (30% of online users today vs. 20% in 2001).

If there’s anyone that believes in the power of word-of-mouth marketing it’s me. The power of getting the right information into the hands of the right people (influencers) and arming them with everything they need to make a decision to consume a brand or product can not be underestimated. But if the trust between brands and the consumer is in any way compromised, then the communication channels break down and you create antagonistic, skeptical consumers that will shun you — and tell everyone else to as well.

The travel industry is feeling the effects of this right now.

BzzAgent, I know you won’t let this happen, and you will fight potential primal urges of the big agencies — protecting the integrity of what we do.

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NBC’s Hulu, the joint venture between NBCU and NewsCorp is set to launch on Monday in private Beta, a month later than originally planned.

I’ve mentioned Hulu before, but will most definitely be taking a scrutinizingly long look at it again when it launches. After pulling all of its content from YouTube, NBC is ready to take on the online video world on its own.

(via TechCrunch)

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I’ve been harboring a viewpoint for a while, and now it’s time for me to divulge it. MySpace wants to be a “portal”.

As TechCrunch reports, MySpace will be announcing a new casual games channel. This is hot on the heels of them announcing their MySpace TV co-production, Roommates.

This is starting to look like Yahoo, isn’t it? Yahoo!Games, Yahoo!TV, etc.

If you want to know the difference between MySpace and Facebook, the fundamental one is that Facebook does not have portal ambitions. That’s not necessarily a bad thing either.

But, if MySpace keeps this strategy (and their reach) up, and if they can remain relevant and successful, they have to be considered every bit as much of a portal as Yahoo!, AOL and MSN — albeit for a younger skewing demographic.

As with many portals, though, the success of its initiatives is dependent on its ability to drive traffic to those initiatives internally. External traffic visits are great, but most usage has to come from people that already use the portal. We’ve seen portal initiatives fail though, even with heavy promotion (i.e. many Yahoo! news initiatives).

So its obvious that MySpace is making that portal play. But their success will be dependent on their ability to deliver what their consumers want — not what MySpace can promote to them. Hopefully, this kind of diversification of services doesn’t dilute the core offering of connectivity and self-expression….

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Advertising Age’s cover story this week is about the Hottest digital agencies. And I’m proud to say that Deep Focus is one of them.

There’s a dissection of differentiating elements, (approximate) staffing levels, and (approximate) revenues, which kind of reads like a shopping list for the holding companies — which is probably why the article was written in the first place. Especially when you call out Martin Sorrell (WPP) and John Wren (Omnicom) in the title of the print edition. The gist is that independent digital agencies are doing just fine, thank you, regardless of competition from the holding companies — making them even more attractive acquisition targets.

What I know about many of the agencies in this list (including us) is that we have built these agencies not to be sold to a highest bidder, but actually change the face, structure, and discipline of advertising for the better. And dare I say, we’re all doing a pretty damn good job of doing that. Sometimes it feels that we’re not just the ones being pursued by buyers, but by everyone else in the holding company organizations who are trying to catch up with the amazing work that we all do. The focus is squarely on innovation. Performance. Creativity. Karma. Those are just some of the things that we felt were commoditized at the larger companies which is why we branched off into our own. Yes, many of the agencies on this list will get acquired. Some will remain independent. But all have their roots in changing the rules of the game. If they can make good on that promise (because believe me, those rules need to be changed), it doesn’t matter where it’s done from, or who owns it.

Here’s the brief lead-in to the article:

Meet the digital indies.

Despite waves of consolidation across the ad-agency business, there remains a healthy bunch of independent digital shops doing everything from search optimization to building web interfaces to simply doing damn good creative. Some of these shops are near-acquisitions for digital-hungry giants; others are adamantly opposed to becoming part of something larger, hanging onto the romantic notion of David vs. Goliath.

But there lies the challenge: While many of these agencies are accustomed to scrapping with others that don’t have a lot of resources and scale, today they’re increasingly up against deeper-pocketed shops, thanks to holding companies and private-equity firms that are snapping up once-small rivals.

For the rest of the article and a list of all the agencies, click here.

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I happen to think the Xbox 360 is the best video game console of our lifetime, for myriad reasons. But apparently, nothing’s perfect.

Lets have a contest.

Have any of you readers had to return an Xbox 360 for repair?

Have any of you had to do it more than once?

I’ve now sent out my second Xbox 360 for repair, which means I’ll soon be on my third console. Apparently, the problem that keeps happening has to do with overheating. Microsoft customer service has (surprisingly) been great, but the point is, this will be my second month-long stint without my console since I’ve purchased it.

It’s incredibly frustrating. What if I unlearn Guitar Hero II? What happens then?

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The rate of innovation is blinding if you stop and look at it. The problem is, in the ad industry, we spend too much time catching up to consumer behavior rather than getting out ahead of it. In my latest column for ClickZ, I talk a bit about rates of innovation, and a couple of things you can do to really be innovative — not just say you are in a PowerPoint presentation.

Read it by clicking here.

Here’s an excerpt:

If you’re unfamiliar with Moore’s Law, get acquainted.

Moore’s Law states that the number of transistors that can be inexpensively placed on an integrated circuit increases exponentially, doubling approximately every two years.

How about Gilder’s Law?

Gilder’s Law, advanced by author George Gilder, states bandwidth grows at least three times faster than computer processing power. While computer processing power doubles approximately every two years (Moore’s Law), communications power (or at least its potential) doubles every six months.

Does your head hurt yet? If computer processing power increases at an exponential rate, and bandwidth potential increases even more exponentially, how do you ensure that your advertising sees what’s behind the technological corner before your consumers do?

Today, some large companies, mostly technology vendors, are reeling in Six Sigma practices and focusing more on innovation. While I wholeheartedly endorse measurement, optimization, tracking, and research practices for online advertising, nothing is as important in the long run as technology innovations.

Think of it this way. You didn’t know Facebook existed 18 months ago. The iPhone was just a rumor 12 months ago. Things change so fast, a 25-year-old and 16-year-old likely have dissimilar online behaviors.

So what are you going to do about that, Mr. Advertiser or Monsieur Agency? What are you doing about that right now?

Here are three rules of thumb to ensure that you’re not falling behind and not only succeeding today, but walking down the road ahead.

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Adpulp points to a great blog post from Tim O’Reilly (founder of O’Reilly Publishing and the Web 2.0 Conference), that makes an important point — that of making sure that people with varying backgrounds, disciplinary focus, and talents are in a room together to collectively solve problems:

In thinking about the future of collective intelligence, we need to make sure that we not only think about systems that lead to convergence of opinion, but also ones that ensure divergence, and fresh inputs. The surest way I know to get this is not to pay attention to the breaking news in your own pond, but to find the next community over, and to create new cross connections. Once the connections are well established, move on. (That’s why, for example, at Foo Camp, you won’t find just folks from communities like open source or web 2.0 — two areas O’Reilly has become strongly identified with and had a shaping role for — but new, and potentially explosive mixtures. What happens when folks from synthetic biology meet hedge fund hackers meet roboticists and makers?)

How does this pertain to advertising? The reason why I believe an agency like Deep Focus is the agency of the present and future is that it’s made up of collective intelligence. Creative, media, publicity, research, legitimately work together, in harmony, to create the best solutions — solutions that factor other disciplines and even other media into consideration.

The era of the silo is over. 25 years or so ago, when media and creative agencies split, it made sense. There was a media fragmentation explosion. But it was fragmentation of TV and standardization of ad inventory that drove it. Along comes the internet, and its infinite fragmentability, targetability, and personlizability, and the potential for the best advertising to throw standards out the window (in a good way), and you’ve got an entire advertising industry that wants not only the most creative ads, but the most creative media — oh, and by the way, they want everyone talking about how smart and clever they are. What advertisers need now are agencies that can wield all modes of digital communication. It’s imperative. Because as many futurists and even consumers will be quick to point out, all media will be digital soon. News, film, games, even TV — all likely by 2010.

I hope you’re planning for this, and I hope you’re asking the same of your agencies — or yourselves.

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