Advertisers Contemplate the Personal CPM

There was a great video interview posted on Yahoo Finance’s Tech Ticker on March 20th by Sarah Lacy titled “The Real Way to Profit from Social Networking” in which she discussed the concept of the “Personal CPM” with Charlene Li of Forrester Research (FORR). For those not in the industry, CPM stands for “Cost Per Thousand” (where 'M' is the roman numeral of 1000) and is the core metric by which advertising is generally sold. The CPM is basically dictated by the combination of how demographically valuable a particular audience is to an advertiser versus how hard it is to generally reach.

There is an old adage in media that an advertiser “wastes half their advertising, only they don’t know which half”, as I have heard several car dealers proclaim over the years. What they mean is traditionally a media buyer had to cast a wide net to reach an appropriate target, but would end up reaching many others in the process that would have no interest otherwise in a product or service, effectively wasting ad dollars. This is why advertisers have become particularly interested in social networks such as MySpace (NWS), Facebook and Bebo (TWX) because they hold the power for advertisers to be able to drill deep down to the exact customer they want, without requiring wide reach to do so. A television, radio, or print advertisement will reach statistical samples of a general age group, sex and wide geographic locale, but a social networking advertisement can instead reach quantifiable numbers of specific ages, zip codes, marital status, religion, political orientation, fan groups, etc.- in theory. As Google (GOOG) has declared publicly lately, it’s not as easy as it would seem to effectively monetize social network inventory though.

This is where the concept of Personal CPM could be quite revolutionary. Per Ms. Lacy,

When I caught up with Charlene Li recently we talked about a new idea the Forrester Research analyst has been championing: Making social networking less of a locked-down portal, and more something that just permeates the Web. Such an idea flies in the face of all traditional advertising-based businesses. Even Google needs you to come to its site first before sending you around the Web. But Li explains why it could be the next frontier in targeted marketing.

In a nutshell, Li’s Personal CPM is the value that advertisers would ascribe to someone who tells their own social circle of a product or service that would otherwise be advertised by them. The more valuable the social circle is to that particular advertiser, say a mother’s group for a new children’s clothing line, and the relative weight, or “social capital”, that a particular individual has within that social circle to influence behavior and effect consumption, the more valuable that individual’s Personal CPM would be to that particular advertiser.

This not unheard of in the offline world, and one only has to look to the master of self promotion, Donald Trump, to see the concept in action. Trump has basically used his social capital to build a worldwide luxury goods brand that consumers seek to affiliate themselves with. Two identical buildings side by side could have very different values ascribed to them by someone looking to buy a luxury apartment if one was “Trump Tower” and the other was simply “The Building”.

Another offline example, and perhaps even better than Trump, is Paris Hilton who gets paid to simply show up at a nightclub to put her stamp on it. Club owners will pay Hilton because she has strong social capital in that realm, and other club hoppers will come to the club simply because she has. This is exactly what social networking is all about. I personally watch a number of my friends’ Facebook News-Feeds to see what applications they are adding and what groups they are joining. If one of the people in my social graph is a heavy tech guru and early adopter of the “new-new” thing, that person’s applications are of much more interest to me to also try out. If another friend is a leader within a shared political ideology, I tend to join those same groups.

One of the people in my social network on Facebook is Mark Cuban, who I watch closely to see what new businesses he is starting and what applications he is adding. I consider him to be a cutting edge individual, and I want to know what he knows. Cuban himself wrote about this concept of social capital in his own blog back on February 27, 2008, when he posed the question “Will you watch what I watch?” In that blog, he offers the case study of Oprah Winfrey who can make an author or product line a huge success simply by mentioning it to her viewers who are part of her extended social circle. Cuban asks:

Is Oprah the best model? Is she really a social recommendation engine with an outreach network of millions? She obviously is a brand trusted by millions, are there others that could be as powerful? Do they require a hit TV show? A website , a blog, a YouTube channel? What is the inflection point of impact in terms of numbers? Or could Facebook or Myspace pages truly turn into trusted recommendation points that actually lead to purchases on a repetitive basis?

If Mark Cuban on Facebook lists my favorite magazines, books, movies, what have you, will anyone care?

Clearly, the answer to his last question is yes, at least with one person in his Facebook network. When he launched RadicalBuy (IMKI.OB), which I previously wrote about for Seeking Alpha, I was amongst the first to sign up simply because I saw he had. When he mentions a new blog or site that he visits, I routinely check it out.

Advertisers have a long way to go to be able to fully capitalize on this concept, and there is probably a great business for any major advertising agency like WPP Group (WPPGY), Omnicom (OMC) or even a start-up that could build a system that categorizes and ranks individuals with high levels of social capital in their respective circles that could be accessed directly by advertisers. One has to imagine that at some point there could be an online exchange where all of the individual Paris Hiltons in varying fields worldwide could register and offer their services to the highest bidder, effectively creating a marketplace for the Personal CPM.

For traditional media companies, this will never replace the ability to tell mass amounts of people simultaneously about a new product, and events such television network programs and major sporting events like the Superbowl will only continue to become more valuable due to their phenomenal reach in an ever fragmenting landscape. However, it does offer advertisers, and in particular local advertisers, seeking a much more targeted strategy to get the word out about their products in a much more economical manner should the concept of Personal CPM gain footing.

Disclosure: None

Disclaimer: This article reflects the individual views of Mr. Hannan and may not be attributed to any person, company or other entity with whom Mr. Hannan is affiliated.

Comments

[Donald Johnson:]

Great piece. I assume you follow micropersuasion.com, which has been covering social networking in depth. Also, check out what Capital One (COF) is doing with social networking. I've written about it here:

www.businessword.com/i.../

2008 Mar 24 11:32 AM

[peter verre...:]

Personal CPM is a very good starting point, but it overlooks something important. What advertisers want to equate to traditional advertising in social networks is really much older and harder to manage--but potentially more valuable--reputation. Brand is what a product says about itself, built or guided most often by the paid, controlled communications of a company. Reputation is what others say about you, or in this case, about a brand. Endorsement of a brand or product via a social network or a role model or a personal advocate is what public relations has always been about. But that set of tools has often worked in isolation from advertising, direct marketing, etc. The fact is, to extract the potential power and value of social networks as a conduit for sales takes a different, more flexible framework and a different way to measure progress, because it is not something an advertiser can control.

Part of the assumption behind personal CPM seems to be that people in a network will pass along controlled communications, like a copy of an ad, or might recommend a product or service in words that would be very much like the traditional terms an ad or promotion or sponsorship might use. But, the real power is in the personalization that makes the recommendation valuable to others in a network. So it isn't passing along a link to a YouTube posting of an ad or even an amateur video, although there can be value in that. It's a friend saying to a friend, "this is what I use, and it works" in his or her own words. Unstructured and uncontrolled. You might influence what a person will say to his or her network, but with few exceptions (like the attempts to inject product placement into blogs or similar settings--which may ultimately work in some cases) you won't control it. Marketers are beginning to recognize the differences, and are using new tools to measure the impact of uncontrolled content on sales, earnings, stock prices, and other results. This is the start of the integration of marketing disciplines that have been separate.

Reputation--along with the uncontrolled communications, experience, and expectation that build it--are where brand was 20 years ago. The value of reputation in an interactive, online environment as well as offline, is going to be a very important future driver of corporate value, even more powerful in combination with traditional branding and advertising.

2008 Mar 26 08:56 PM