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Google still waiting for social ad payoff
Written by Daniel   
Friday, 01 February 2008 12:46

 Google still waiting for social ad payoff

January 31, 2008 5:33 PM PST
Posted by Elinor Mills
C/Net news

You may be friending and poking your acquaintances on social networks, but that doesn't mean you are paying attention to the ads. Or, maybe Google just made a bad deal with MySpace in which it guaranteed to pay a lot of money even if you don't click on the ads.

Google's fourth-quarter results missed expectations on Thursday, partly due to a rise in traffic acquisition costs that cut into revenue. Executives acknowledged in a conference call with analysts that they made less money serving up ads on social networks than they expected.

The news, which prompted a drop in the share price after-hours, is a sign that social networks may not be the easy Holy Grail for advertisers once believed to be.

"When you have the largest online advertising player with the most advanced monetization tool set out there talking about challenges monetizing certain types of pages, yeah, it would seem to be an indication of a broader industry issue," said Derek Brown, an analyst at Cantor Fitzgerald.

Microsoft, for its part, isn't seeing the same thing as its chief rival. A Microsoft executive told CNET on Thursday that monetization rates are good and have been steadily rising since the company first began feeding ads to Facebook in mid-2006.

Google executives declined to specify exactly what the problem is. Chief Financial Officer George Reyes referred to "a few AdSense partners" to whom Google is required to make guaranteed payments. "We have found that social-networking inventory is not monetizing as well as expected," he said.

Under further questioning, co-founder Sergey Brin said the company was disappointed in experiments it had run on some of the approximately 20 social networks it works with, which include MySpace and its own Orkut.

"I don't think we have the killer best way to advertise and monetize social networks yet," Brin said. "It's a big opportunity because it's so much inventory."

MySpace executives were not available for comment Thursday night and a Facebook spokesman did not return a call seeking comment.   [More...]  [Comments...]

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