AOL-Bebo deal is good for the industry March 14, 2008

There has been a lot of coverage on the merits of AOL buying Bebo for $850m in the last 24 hours. [Disclaimer: from 2002-2005 I was an AOL employee, initially as SVP of Corporate Development, then as GM of Netscape.] While there has been debate about whether this is a good deal for AOL or not, there is no doubt in my mind that it is good for the social media industry.

As Inside Facebook and Techcrunch have noted, the use of social media has far outpaced the monetization of social media. This is true for the web in general (21% of media time, 7% of advertising dollars), but even more true for social media. As I have noted in the past, I believe that this is because social media needs a standard ad unit. Today the bulk of monetization within social media sites comes from IAB standard buttons and banners. That is a good start, but it does not take advantage of the inherent social elements of social media. We have yet to see a standard ad unit emerge that is native to social media.

In social media, users can willingly affiliate themselves with a brand, an implicit recommendation of that brand to their friends. This is clearly valuable to advertisers. It can take many forms, including Facebook’s Social Ads (announcing the purchase of an item), Bebo’s sponsored profiles (where a user can “friend” Burger King), MySpace’s momentum marketing, Gaia’s product integration (e.g. with Scion) or Clearspring’s sponsored widgets. Each company today sells its own special flavor of social media advertising. But standards are set by industries, not by individual companies. An advertiser today who wants to spend $10m on TV advertising can do so with one call and one creative unit. But they can not do that today across social media – they have to instead custom craft a deal with each social media property. That is a problem for the industry and one of the reasons that advertising spending lags media use – there is too much friction in the system

With AOL’s purchase of Bebo, AOL now has a vested interest to help create a standard ad unit for social media. Moreover, AOL has the advertiser relationships and the clout at the IAB to be able to accelerate this standardization process. AOL now joins Fox (Myspace) as a big media company with both a vested interest in standardization, and the relationships to make this happen. We can expect to see a shorter timeline towards creating a standard, making selling advertising look more like sales and less like business development. This rising tide will lift all boats in the industry.