Advertisement on Web 2.0 Websites as exemplified by Social Networks

Seminar Paper, 2008

20 Pages, Grade: 1,7



1 Introduction

2 What is Web 2.0?
2.1 Necessary Developments For Web 2.0
2.1.1 The Transfer Rate
2.1.2 The Access Fees
2.1.3 The Changes Of User Habits
2.1.4 The Browser War
2.2 The Core Competencies Of Web 2.0 Companies

3 The Advertisement In Social Networks
3.1 Social Networks
3.1.1 Features Of Social Network Websites
3.2 The Status Quo
3.2.1 The Performance Of Advertisements
3.3 Framing on Social Network Websites
3.3.1 Branded Communities
3.3.2 Advertisements Designed By Users
3.3.3 Development Of Applications
3.3.4 Spread Viral Multimedia Content
3.3.5 Advertisements In Videos

4 Conclusion


1 Introduction

The internet is one of the newest communication technologies and has run through fundamental technological progress during the last years. During the end of the 1990’s many internet firms were established whose investors expected high revenues. However many of these firms could not meet the expectations, the stock prices of many firms declined rapidly and many firms filed for bankruptcy. Since 2004 the internet developed to the Web 2.0 which suggests that a better version of the web exists today.

Spendings in online advertisements were interestingly not effected by the crash of the internet market at the beginning of the 21st century. Since 1998 the net advertising revenues have increased constantly.[1] In 2008 US-American companies will spend more for internet advertisements than for TV commercials.[2] In the past, famous Web 2.0 websites were sold for high prices: the Holtzbrinck publishing group bought StudiVZ for around 85 million euros[3], the video website Youtube was sold to Google for 1.65 billion dollars[4] and News Corporation paid 580 million dollars for Myspace[5]. However all of these social networks still have to supply evidence that their company value is not overestimated. As far as the advertisement revenues are concerned none of them generate significant profits yet.[6]

In this paper I will analyze the performance of advertisements on Web 2.0 websites as exemplified by social networks. First I will trace the developments that led to the so-called Web 2.0 and define their characteristics. Then I will focus on social networks, analyze their features and the possibilities to use them for advertisement purposes. Finally I will analyze several possibilities to advertise on Web 2.0 websites.

2 What is Web 2.0?

In 2004 Tim O’Reilly initiated a brainstorming session for companies that had survived the crash of the New Economy. In it the participants identified characteristics they shared. During that session the term Web 2.0 was born. The addendum “2.0” was taken from the software development, different versions of software are given similar numbers. A higher number behind the dot shows an incremental improvement of the software, a higher number in front of the dot a fundamental change or improvement of the software. As the internet neither is published in versions nor does a version 1.0 officially exist the term Web 2.0 is considered inappropriate by some authors. Nevertheless the term precisely entails the fundamental developments the internet went through during the last years. But it has to be made clear that this was an incremental development and not one singular big change as the addendum of the term suggests.

2.1 Necessary Developments For Web 2.0

Tom Alby[7] identifies four fields in which fundamental changes led to the development of the Web 2.0: the higher transfer rate, the decrease of access fees, the general agreement on browser standards and the development of new user habits.

2.1.1 The Transfer Rate

In the 1970s and 1980s acoustic couplers which had a transfer rate of 2,400 bits per second (bit/s) were used to access the internet. An A4 page, which had not been formatted, could be transferred in less than seven seconds. In 1991 the monopoly for terminal equipment was gone and modems with a transfer rate of 9,600 bit/s and 14,400 bit/s were developed and became standard when the internet became more popular in 1995. In those days and due to the rather slow transfer rates websites mainly were composed of text and only very few images. A website of 50 kilobyte was transferred within 30 seconds. In 1994 modems with 28,800 bit/s were available, in 1996 modems with 33,600 bit/s and finally modems with 56,000 bit/s were introduced. The latter is the fastest transfer rate with analog devices so far.[8]

In 1995 and 1996 the Deutsche Telekom sold ISDN lines which had the advantage that users could access the internet and talk on the phone at the same time or could use both lines to access the internet twice as fast. ISDN has a transfer rate of 64,000 bit/s or, if using both lines, 128,000 bit/s. The increase of the transfer rates favoured a more elaborate design of websites which then not only offered text but more images, online catalogues etc.

Since 1999 DSL (Digital Subscriber Line) with download rates of 765 kbit/s was offered in some large German cities. It is 13 times faster than a 56kbit/s[9] modem and 12 times faster than ISDN. After some difficulties with the supply of the hardware during the launching period, DSL caught on and is a widely used technology today. DSL is available with transfer rates of 2, 4, 6, or 16 megabit[10] per second. Besides, users can use broadband internet connections of many cable TV providers. At the end of 2008 experts predict that 58% of German households will use broadband internet connections.[11]

Fast internet connections is one requirement for many of today’s Web 2.0 applications as often great amounts of data have to be transferred. The platform FlickR where users upload pictures would not have been usable with a slow modem connection. Today the pictures of a holiday trip are downloaded within a few minutes, a couple of years ago it would have taken hours. The same is true for the usability of iTunes music store or Youtube which both would not have attracted any users if they would have had to spend hours for downloading.

2.1.2 The Access Fees

Not only the transfer rate but also the connection fees impact the popularity of the internet. The early adopters[12][13] had to pay 52.20 DM per month for the telephone fee only, if they were online one hour per day. The fees for the internet services that provided a connection for private users came to an additional 50 DM terminal charge, 8 DM basic fee and 0.06 DM per minute connection costs. These fees resulted in monthly costs of 218.20 DM, if you were online one hour per day.

In 1995 AOL started its business in Germany and offered the use of the internet for 9.90 DM per month including ten hours of internet connection. An additional hour cost 6 DM which resulted in monthly fees of around 130 DM if you were online an hour per day in addition to the telephone fees which could be quite high if you did not live close to an access point.

During the following years several changes of payment structure by the Deutsche Telekom did not reduce the internet fees significantly. At the end of the 1990s Mobilcom and Deutsche Telekom launched a plan for unlimited use but had to cancel the offer after they realized that it did not produce the expected profit. In 2000 the Deutsche Telekom launched a DSL unlimited plan for 49 DM and today tariffs for internet and telephone for around 30 euro are offered which makes the internet affordable for many more people.

Similar to the increase of transfer rates the decrease of the connection fees favoured the deve­lopment of the Web 2.0 because a couple of years ago the high internet fees simply prevented users to download music for example. The internet fees were much higher than buying the album in a store.

2.1.3 The Changes Of User Habits

Tom Alby points out that not only the transfer rate and access fees changed but that the users did too. There are some conventions that were agreed upon. Today all experienced internet users know that a click on the website’s logo will bring the user back to the homepage. Users have to spend a certain amount of time online to learn this and only a sufficiently large group of them can spread this knowledge among others.[14]

According to Alby, the increased knowledge of the internet was accompanied by more trusting and using the internet. The positive experiences of the early adopters had an equally positive impact on the acceptance of the early majority which started to use the internet too.[15]

Today the late majority[16] is getting used to the internet which also shows that the trust in it is very high and services like Amazon, eBay and, even more conspicuously, soci]al networks like Facebook and StudiVZ where people sometimes make great parts of their private life public are widely used.

2.1.4 The Browser War

In the 1990’s Microsoft and Netscape fought a battle over the standards to be used on websites.[17] At that time webmasters had to design and test their websites for several versions of the Netscape Navigator and the Internet Explorer.[18] Nowadays, after Microsoft won the browser war, the Internet Explorer dominates the browser market.[19] Although the browsers Firefox, Opera and Apple’s Safari are competitors for Microsoft we do not witness the ”destructive competition over web standards that held back progress in the 90’s.“[20] any longer. The situation today is that the code of a website only has to be written for one browser. That makes it easier to develop new web applications and decreases the development costs. The time which was used to make sure that a website is compatible to all browsers is spent for the development of new applications, for example Rich User Interfaces. These interfaces provide more functionality than usual websites and approximate PC applications.

2.2 The Core Competencies Of Web 2.0 Companies

During the brainstorming session which had been initiated by Tim O’Reilly and which I had mentioned above the participants identified several core competencies which the firms that survived the crash of the New Economy share.

Although O’Reilly mentions the development of the internet in passing only the firms he talks about in his widely cited article ”What is Web 2.0?“[21], which is the outcome of the brainstorming session, would not had been successful earlier.

One core competency that the Web 2.0 companies share is that they use the web as a platform which means that a software does not have to be installed on individual PCs. One of Tim O’Reilly’s examples is Google which started as a web application free of charge, has no software releases but incremental improvements[22] and does not require any software installations on a PC.

Another core competency is harnessing the collective intelligence of the users for example with weblogs[23], with user generated structures within a folksonomy[24] or with collaboration within a social software[25].[26] Tim O’Reilly mentions some examples of firms which successfully harness the collective intelligence, for example Amazon which sells the same products as its competitors but uses user activity for better search results and recommendations for customers. Another very popular example of that characteristic is Wikipedia, an online encyclopedia where any web user can add articles and is able to edit any articles which already had been added by others. Cloudmark uses the individual decision of email users about what spam is to develop an application for spam protection that is more powerful than systems that rely on the analysis of the messages themselves.

According to Tim O’Reilly, every significant internet application has been backed by a specia­lized database. Google’s database consists of key words gathered by its web crawl, Amazon has a specialised database of products, eBay has a database of sellers and buyers, Mapquest a map database.

It is a characteristic for the development of software in the Web 2.0 that it needs to be maintained constantly and not only for occasional releases. This is due to the shift from software as artifact to software as service.


[1] von Reibnitz (13)

[2] Spiegel Online,,1518,566081,00.html, Aug 11, 2008

[3] Focus online,, June 12, 2008

[4] Spiegel Online,,1518,441686,00.html, Aug 8, 2008

[5] BBC news online, Aug 19, 2008

[6] Spiegel Online,, June 14, 2008

[7] Alby (2007), p. 3-13 (1)

[8] Alby(2007)

[9] 1 kbit = 1000 bit

[10] 1 megabit = 1024 kilobit

[11] Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V. (3)

[12] Alby(2007), pp. 6-10

[13] In his model of the diffusion of innovations E. M. Rogers developed the s-shaped diffusion curve. He suggests that first the innovators adopt an innovation followed by the early adopters, the early majority, the late majority and finally the laggards.

[14] Alby (2007), pp. 10-12

[15] For an explanation see: 2.1.2 on the preceding page

[16] See explanation on 2.1.2 on the previous page

[17] O’Reilly (12)

[18] Alby (2007) p 13

[19] Alby (2007) p 13

[20] O’Reilly (12)

[21] O’Reilly (12)

[22] Alby p 131 (1) notes that although new versions are not identifiable at first glance but become apparent to the users and are discussed at Google. For the later he gives a reference in a blog of Matt Cutts ( http: // where he writes about a new release of sitemaps.

[23] The term blog is a contraction of the term Web log. It is a website with the spirit of a public diary. The blogger regularly publishes articles which can be commented by others.

[24] Folksonomy is a method of creating and managing tags to annotate and catogarize content. In the case of folkso- nomy metadata — keywords that describe the content of a website — are generated not only by the creator of the website but also by users.

[25] For a definition see Chapter 3.1 on the following page

[26] Alby (2007) p 15 (1)

Excerpt out of 20 pages


Advertisement on Web 2.0 Websites as exemplified by Social Networks
Humboldt-University of Berlin
Catalog Number
ISBN (eBook)
ISBN (Book)
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web 2.0, advertisement, youtube, facebook, myspace, studivz, social networks, social media
Quote paper
Matthias Lehmann (Author), 2008, Advertisement on Web 2.0 Websites as exemplified by Social Networks, Munich, GRIN Verlag,


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