The news that Google will pay at least $900 million in advertising revenue to have its search boxes and keyword-driven ads on MySpace helps to answer an important question about social networking: can companies monetize the strong traffic growth of this Web 2.0 phenomenon?

The deal means that Fox Interactive is starting to see a return on its $580 million acquisition of MySpace. Google, in turn, is expected to realise net revenue of $50 million to $200 million from its deal.

So there’s money being spent, and not just by Google. Debra Aho Williamson, Senior Analyst with eMarketer, writes in her breakdown of the deal that it will have no significant impact in 2006 because the payments do not start until 2007. eMarketer estimates that MySpace will generate $180 million in US ad revenue this year, two-thirds of total revenue in the social networking category.

“As for succeeding years, News Corp. executives stated in an Aug. 8 quarterly earnings conference call that less than 10% of the $900 million guarantee is earmarked for 2007. That leaves around $810 million to be divvied up over 2008, 2009 and the first two quarters of 2010. And that’s assuming Fox Interactive Media makes its minimum targets – both companies believe the upside will be far greater.

“eMarketer estimates that US social network ad spending will rise to nearly $1.9 billion in 2010, from $280 million in 2006. With the Google/MySpace deal, ad revenues at MySpace may top $1 billion as soon as 2010.”

But while the social networking opportunity is being monetized, the relationship between two Web 2.0 poster children and the thoughts of an influential business professor suggest companies considering how they can participate must consider “three Cs” if they want to master the opportunity: core competence, Consumer Generated Media and controversy.

MySpace has demonstrated that it has discovered a formula for attracting and holding the attention of an extremely distractible, and highly desirable, demographic. But it has not yet developed an e-commerce platform to generate revenue from its audience’s interaction. Enter Google, which is constantly finding new applications for its Web 2.0 competence in managing complex data. Uniting the competencies of the two entities could create a new model for online transactions.

Aho Williamson points out that: “New products such as Google Local and Google Checkout are crying out for an audience and MySpace could be a convenient place to give them a big push: Local businesses could offer a seamless way for MySpace users to find their retail storefronts using Google Local, or they could simply handle online transactions with MySpace users by using Google Checkout.”

As for Consumer Generated Media (CGM), John Deighton, Harvard Business School Professor and an expert on interactive advertising, provides an interesting perspective. He was interviewed by the Harvard Business School’s Working Knowledge newsletter about the deal, and sees MySpace as “a really exciting marketing frontier.” For one reason, the utilization of CGM means that it can continuously remain linked with the needs and interests of its audience: “MySpace will evolve with its users. It relies on user content, so this is bound to happen. As member tastes grow up, so will their profiles.”

With concerns about online predators targeting MySpace users, one can’t mention social networking without noting the controversy it attracts. Deighton suggests that advertisers not be scared off by this concern, and even sees it as part of MySpace’s appeal: “It is popular precisely because it sits between safe-boring and truly frightening. I don’t think News Corp really minds MySpace’s racy image.”

There is no doubt that social networking can be monetized. But the companies that do so must have a competence in managing content in Web 2.0—in this case, harnessing collective intelligence and handling a complex database—know how to build a business model around CGM and be willing to handle the controversy that can be involved.

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If you spend any time on the Internet, you will have at least a passing interest in blogs. But if you’re responsible for communicating your corporate message and managing your advertising budget, you need to be using this social media actively. Recent statistics demonstrate that blogs are an extremely cost effective way to reach an influential audience at a fraction the cost of traditional media vehicles.

The phenomenal growth in the number of blogs has been well documented, and recently released statistics from comScore Media Metrix, demonstrates that this explosion in content has driven a corresponding increase in usage. They report that the traffic to blogs continues to grow, up 56% over the past year to 58.7 million visitors, and that represents 34% of the total Internet audience.

 As with many Internet-related trends, a younger demographic plays a key role in driving the numbers. Users between the ages of 12 and 17 are 21% more likely than average to visit blogs.

However, certain blog niches (like politics) have a median age of 45 and median income of $85,000, and a high level of C-level executives.

Effective blog advertising

The stat about blog niches was provided by Henry Copeland, president of blogads.com, in a discussion with B.L. Ochman on MarketingProfs.com. According to Copeland, the appeal of this new media has driven a 300% growth in blog advertising in the past year. He adds that, if used well, blog advertising can allow companies to establish significant brand awareness for as little as $25,000 to $75,000.

The article makes a strong case for the importance of utilizing blogs for corporate marketing, and provides a number of useful examples about how the media can be used to achieve spectacular—and cost effective—results. But it also cautions that advertisers must adopt a blog mindset it they want to succeed with blog advertising.

“With click-through rates in traditional online advertising dropping, inexpensive blog click-throughs are as high as 1%,” writes Ochman. “Advertisers are starting to appreciate the influencer constituency on blogs, where the distinct advertising value of these audiences ‘isn't their eyeballs, it’s their mouths,’ Copeland says.

“Successful blogs are edgy, have a sense of humor, and are recognized experts in a narrow niche. Blog audiences look at traditional ads, like ‘Click here, get 20% off,’ and say ‘screw this, I've seen it everywhere,’ Copeland says.

In his discussion, with Ochman, Copeland offers the following guidelines for effective blog ads:

Effective corporate blogging

Given the significance of blogs for on-line communications, every company should be incorporating them into their communications mix. Not only is a corporate blog an inexpensive way to deliver information, best practices in corporate blogging have become obvious and are easy to apply:

• Establish your credibility as an expert.
• Know your target audience, connect with them and engage them.
• Use an informal, conversational style.
• Keep your information real and relevant.
• Provide links.
• Respect your competition.

Microsoft provided a high profile example of the benefits of corporate blogging with Robert Scoble. His blog attracted millions of readers and his departure captured mainstream media attention. For instance, in its coverage of Scoble’s move to a video blogging start-up, Forbes.com wrote that: “To err is human, to blog, divine? For the last three years, one man has shown how a blog, plain-spoken and irreverent in its tone, could be a tool to significantly help soften the monopolistic bullying image of a corporate giant like Microsoft.”

Scoble epitomized the practises mentioned above, winning praise for himself and his company. He was clearly an expert who connected with his tech savvy audience, wasn’t afraid to respect Microsoft’s competition—praising nemesis Google, for example—or to criticize his own company. As a result, writes Forbes, “industry watchers came to appreciate both Scoble's honesty and his inside look into the traditionally insular world of software development.”

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Some people really like to gamble, and they always have. According to Open-Site, “anthropologists find solid implications that gambling took place within a large portion of the greatest societies to have ever existed. Dating back to 2300 BC, gambling artifacts have been recovered from some of the oldest civilizations including China, India, Egypt and Rome.”

But while gambling has always been popular, it may never have been as popular as it is today. There’s strong evidence to suggest that the Internet is to blame, and calls for online gambling to be eliminated as a result.

The latest example of this growing interest in gambling, and the Internet’s role in the activity, is the recently completed World Series of Poker (WSOP) Main Event, which attracted a record 8,773 entrants, up from the previous best of 5,619 set in 2005. They were competing for US$154 million in prize money, which is an increase from the 2005 sum of $103 million.

I don’t like to gamble, due mainly to the fleecing I endured from a gentleman named Dave Scharf when we were teenagers. After losing $15 a few too many times to his vastly superior poker skills, I stormed away from the table and have remained absent ever since.

As for Dave, he was just getting started and is now one of the top poker players in Canada and has competed in a number of WSOP Main Events. Ironically, despite killing my desire to gamble, Dave is also responsible for my current interest in the WSOP because I enjoyed reading his blog postings from the event.

After recovering from the shock of learning how much money Dave was prepared to lose at the poker tables, one item that caught my attention was his observation regarding the impact the Internet has had on the WSOP: eight of the 10 players at his table had qualified through one of the on-line poker sites.

According to a recent piece in Newsfactor Magazine Online, Dave can blame his company on Chris Moneymaker, who “turned his $40 investment in an online game into $2.5 million for winning the 2003 World Series of Poker, [giving] anyone with a modem and a fantasy the idea that he might be the next Virtual Amarillo Slim.” At this year’s WSOP Main Event, for example, it’s estimated that 4,000 of the 8,773 players won their $10,000 stake on an overseas-based Internet poker site.

The sites are not based in the U.S. because the Justice Department says that playing poker for money online is illegal, although there are estimates that 15 million U.S. citizens are prepared to break the law by doing just that.

Online gambling is a controversial topic, with proponents, like poker professional and author of multiple books on the game Mike Caro, going so far as to say in the Newsfactor article that: “They’re trying to cut off the United States while the whole world is bonding around Internet poker. Here our representatives are criticizing China for trying to cut off access to activities and information on the Internet, and we are trying to do the same thing.

“I think this is an issue of freedom. Anybody who loves the Internet ought to be concerned with this.”

While Caro’s rallying cry is way over the top, the issue is worth considering for people who are interested in the Internet and its impact on business and government regulations. The Internet makes it easier to do things that people enjoy, and there are always entrepreneurs seeking to profit from that simple fact. In most cases, government stays out of the way and lets the market determine winners and losers.

When it comes to gambling, there are people like me, who don’t like the thought of losing thousands of dollars in the hope of winning millions and are happy to use the Web to live vicariously through people like Dave, who has the wherewithal to lose thousands and the ability to win millions. Unfortunately, there are others who, like our ancestors from 2300 BC, are prepared to lose much more than they can afford by gambling. Those losses are prompting the calls for government action, but it should be apparent that banning online poker won’t work: we like gambling and the Internet too much.