Reposting an old article that I wrote for Mashable…Reposting it here for context 🙂

—–

In his post on why the traditional CPM model doesn’t work anymore, Dave McClure breaks the CPM denial balloon, noting that the popular content-centric, keyword-based Google Adword model delivers a click-through rate of less than 1%. Dave posits that the problem is not Google-specific, but reflects the problem with the CPM model in the new world of social networks and distributed conversations.

As an answer to the problem with lackluster clicks, especially within social networks like Facebook, Dave looks to widgets to serve up content based on the interests of individuals:

“The Revolution Will Not Be Televised. It will be Widgetized. Fortunately, that revolution is already happening… it’s called widgets. and Facebook apps. it’s about engaging users via application workflow, and discovering intent. then you don’t have to advertise anymore, you just serve up the stuff that users find interesting.”

Social Networks

What’s clear is that while the appeal of social networks is growing — with 44.3% of U.S. Internet users expected to participate by year’s end according to eMarketer — the CPM model as a means to evoke a response from consumers is not just flailing, but failing.

Ad networks like Lookery, which target Facebook users, have cut ad rates nearly in half. It’s a move that has worked for Lookery in the short term—at least in providing relief to frustrated application developers.

However, cutting ad rates is not exactly the hallmark of a solid revenue model. These guarantees are more like a Band-Aid than the full-scale surgery that is required of online advertising.

Why CPMs Don’t Work

The reason CPMs don’t work in social networks is that they are trying to target new media users using old media technology and thinking. The CPM model asks, “What is the content on the page?” But social media conversations aren’t ON any one page anymore. They jump from one site to another, they take place on a variety of platforms and media types, across blogs and Twitter and FriendFeed and Facebook and MySpace.

In this AdAge article, Steve Rubel talks about the role of social search in the changing role of online advertising:

“Social-network advertising to date… has been a mixed bag. Everyone is innovating, but the draw on social networks is your group of friends. That makes it harder to be distracted by ads. Enter search. Watch for contextual advertising and programs such as Facebook’s social ads. New models will emerge where social algorithms and keywords trigger contextual ads.”

Finding a Solution

It’s clear that a solution to the social media monetization puzzle cannot be solved by content alone. Tools that track the context within which the social media participant engages within various communities are important. Context-based discovery and social search play a role in bringing relevant content to receptive audiences. Interest-based user engagement — based on user context, not content -– tracks interest across various conversations and among the plethora of social media sites.

Knowing – based on her participation across social sites – that a social media participant is a New England Patriots fan who vacations frequently in Hawaii and loves water sports and high-tech gadgets is invaluable to creating a tailored interaction between that participant and companies with offers that are relevant to her.

Universal Profiles

Universal user profiles can inform and strengthen the relationship between social media users, third-party application developers, and advertisers. In contrast to the fragmented identities we maintain in all of the social sites we participate on, universal profiles present a hyperlinked record of users’ participation across sites.

Universal profiles have supercharged the idea of “context” as it relates to the distributed Web, offering the best of both worlds. These profiles track and present the activity of users across communities, while leaving control of the data in the hands of the community or site owner. They are proving to increase traffic for site owners while providing the community with non-intrusive ways to monetize content and build reputation.

This context-based approach to social media advertising offers a creative, secure way to breathe new life into an old model. With a new way to seamlessly present meaningful offers, and even customized environments, to users, advertisers can now understand and appeal to an individual’s online and offline interests based on the fullness of their participation across social media sites. Greeting users on their own terms –- rather than force-feeding them ads based on key words and content — can, over time, transform Internet users from “mouse clicks” and “targets” to fully engaged participants and willing customers.

As founder and CEO of SezWho, Jitendra Gupta brings 13 years of experience in developing and managing software solutions. He holds an MBA from the University of and a B.Tech in EE from IIT Kanpur, India. Jitendra speaks frequently on the topic of context-based search, distributed conversations, and the changing nature of the social web. He has been blogging for nearly two years and occasionally contributes to ReadWriteWeb.com. Jitendra can be reached at jitendra [at] jitendragupta [dot] com.