MySpace gets the most users, but ad sales lag

MySpace might get more user traffic than any other social networking Web site, but it will probably fail to hit revenue targets set earlier this year by its corporate parent News Corp.

That disparity between incoming traffic and incoming dollars has led to new questions about the relationship between advertising and social networking.

MySpace tops Facebook and all other social sites in terms of both numbers of regular visitors and minutes spent online, News Corp. officials said in a conference call yesterday, drawing upon figures from both comScore and Nielsen.

The MySpace audience consists of 73 million users, compared to Facebook's 36 million, said MySpace President and COO Peter Chernin. MySpace users spend 242 minutes -- or more than four hours -- on the site each month, as opposed to only 167 minutes -- or not even three hours -- on Facebook.

Still, however, only 54% of all "social network ad dollars" are going to MySpace, according to Chernin.

Also during the call, Chernin admitted that Fox Internative Media (FIM) -- the division of Rupert Murdoch's News Corp. media empire that oversees MySpace -- probably won't meet its goal of posting an 80% increase in revenue during the company's fiscal year, which ends next quarter.

The News Corp. COO didn't sound at all alarmed. "It's worth pointing out that in a tough economy our shortfall [for FIM] will be slight -- roughly only about 10%. And to put it in some context, FIM is nearly a billion dollar revenue business -- a business that is not even three years old. And to give you some comparisons, it took Google five years to hit a billion dollars. It took Yahoo eight years, and we'll get there in a little over three years," said Chernin.

But Chernin placed the blame for the shortfall squarely on issues specific to advertising on social networking sites -- a move with which outside observers tend to agree. Besides low click-through rates, social networks are characterized by high "ad inventories," a term referring to the quantities of Web impressions that might potentially be sold for advertising.

"The culprit: There is too much inventory, and not enough click-throughs," according to Erick Schonfeld, co-editor of TechCrunch. "Dumping ads on MySpace without targeting them doesn't work," Schonfeld wrote for Seeking Alpha this morning.

News Corp.'s Chernin pinpointed three specific ad challenges for MySpace: high ad inventories, a need for better "ad targeting models," and the difficulty of quantifying for advertisers "the economic value of a friend in the social media space."

To deal with the ad targeting issue, News Corp. has developed a new model called "HyperTargeting."

"Hundreds of HyperTargeting campaigns have been run in the last several months with 20% or more of all orders today including some HyperTargeting. And we are seeing double the CPMs for HyperTargeting campaigns versus non-HyperTargeted. Orders with HyperTargeting are about 60% larger," Chernin elaborated.

Users of HyperTargeting have included Chevrolet, "which used HyperTargeting to reach snowboarders," and the Target retail chain, which is identifying social networkers "by genre of music," according to the COO.

"But despite the obstacles we're facing, what we're accomplishing is extraordinary and we think the future looks very exciting," Chernin said. "The MySpace user base continues to grow, [and] we're actually earning more money per user."

Yet while the social networking site owners and advertisers spend time on gathering and crunching their numbers, many users out there are resenting the presence of advertisers on social networking sites at all.