Are Social Networks Last Year's Virtual Worlds?

From VWN; "It's fairly common to talk about how virtual worlds are in the same position as the Web as a whole was in the mid-90s, but after reading a series of articles chilling the hype over social networks in the last few days, I'm starting to feel more comfortable with where we as an industry are. My original title for this was simply going to be "Social Networks Explore Global and White Label Efforts as Ads Fail," but as I started writing about social networks, I thought more and more of the articles I've been writing about virtual worlds over the last seven months. The online advertising market is booming to the tune of $40 billion. According to eMarketer, half of that is directed outside of the U.S. while a full 80% of the Internet-using population is based outside of the States. Social networks are waking up to that fact, with acquisitions, expansions, and translations bringing the leading networks into the European, SE Asian, and Russian markets. "It's a land grab, as well as a form of insurance in case the U.S. market proves itself to be fickle," Marissa Gluck, an analyst at Radar Research, told USA Today. "When you look at Internet use globally, the U.S. is a small but significant chunk. It's also beginning to plateau in terms of growth." It seems like a sound insurance policy. While social networks still have user numbers to make the virtual worlds industry envious (there's user growth at a rate of 11.5%), they're slipping, particularly in regard to the all-important engagement-for-monetization categories. Anyone at the Virtual Worlds Fall sessions discussing "Virtual Worlds in China," the China Recreation District, or "The Asian Market - What We Can Learn," should see the parallels. While Second Life was drawing almost all of the media attention in the West, it was drawing most of the swelling backlash as well. China, on the other hand, was getting ready to launch a nation-wide infrastructure program based on virtual worlds, Japanese was readying social environments targeted more directly at local citizens, and
companies like Centric were looking at partnerships abroad. MSNBC reported on Friday that Comscore has seen the time users spend on networks slip by 14 percent in four months, that MySpace's population has declined a peak of 72 million users in October to 68.9 million in December, and that growth is slowing. "What you have with social networks is the most overhyped scenario in online advertising," Tim Vanderhook, CEO of Specific Media, an website ad-placement company, told MSNBC. That's not to count out the social network space. Predictions for ad-spending are up to $2.1 billion from last year's 155% jump to $1.5 billion. That said, Google apparently isn't making the money that it expected to from its partnership with Facebook, and user click-through rates for ads on social networks aren't nearly as high as they are elsewhere on the Web. Video game company Green Screen stopped advertising on MySpace after seeing only a 13-in-10,000 response rate. It sounds very similar to the discussions that I heard in the summer and that, to be fair, are still very much ongoing. Users don't want to see traditional banner ads slapped across their custom social profiles in very much the same way that they don't want to see spinning billboards plastered across the virtual world landscape. Unfortunately for social networks, attempts to integrate advertising haven't worked out as strongly. The most infamous attempt is, of course, Facebook's Beacon. After stores and websites signed up, purchases and activity were tied to users' profiles. Users hated it. It felt like an infringement on privacy, didn't provide any stronger engagement with the brand, and added more clutter to the Facebook Newsfeed. In an op-ed yesterday for MediaWeek, Makena CEO Michael Wilson tackled many of the same questions for virtual worlds. It often seems next to impossible to gauge ROI, and many marketers still don't really know how to use the new form of interaction. But as more marketers replace straightforward ad buys with ongoing events, campaigns, and branded goods, the engagement for virtual worlds is blossoming. According to Wilson, "On average, our members spend about 10 minutes interacting with a brand in the world, compared to an average of 12.16 seconds interacting with traditional online advertising. That's a 6,000 percent improvement, which is even more amazing since it's based on actual data." Finally, InfoWorld is reporting on the trend of increasing investment and development for white label social worlds. "The flood in this market is due to low barriers to entry from easy-to-deploy software, an influx of venture money wanting to get in on the 'so-net' action and media frenzy from existing social networks like Facebook, MySpace and others," said analyst Jeremiah Owyang. Sound familiar? If not, look at this interview with Exponential from November about the prominence of niche and white label worlds for 2008. While public worlds like Second Life have been seeing backlash for mixed levels of content and lower-than-expected numbers, niche worlds offer specific targets. Of course, InfoWorld is looking at the social network white bubble boom as more of a bubble, and last week saw Linden Lab's Ginsu Yoon call into question the independent success of many of the similarly niche worlds. Many companies like Millions of Us and The Electric Sheep are doing business in both virtual worlds and social networks--it's all social media--but in at least my everyday life, it's more common to meet someone who's clicked an ad for a movie premier on Facebook than participated in a long-running campaign in a virtual world. It looks like that could be changing, though. Regardless, with companies like Scion looking for deeper engagement with trendsetters inside virtual worlds than in impressions on social networks, it's starting to feel almost as if social networks have reverse leapfrogged virtual worlds in the hype cycle. (Welcome to my 2007, Facebook.) This is only an impression after a flurry of articles (read: major caveat), but that's the same way that most people were forming impressions about virtual worlds throughout the course of last year. For those of you that deal with both social networks and virtual worlds, do you get the sense that the tables are turning? As always, we'd love to hear your thoughts.