VentureBeat

SocialMedia, a San Francisco company that places ads on social networks and other areas where there’s a social component for advertisers to tap, has hired Savvian investment bank to raise what could be a $20 million second round, we’re hearing.

I wrote about SocialMedia last month, and described the evolution of its offerings including its new FriendRank technology to help place socially relevant ads.

Apparently, so much interest from venture capitalists has since hit the company that it has decided to hire Savvian to manage the incoming. Savvian helped manage the fundraising process of Federated Media, another new ad company that raised a large round. Savvian’s partners Rich Jasen and John Labros are the bankers involved, and are said to understand this sector.

Typically a company at this stage doesn’t like to sell more than 20 percent of its shares in a round, and we’re hearing SocialMedia is of this mindset. If you do some quick math, that means it could be looking to raise money at a $60 million value before the investment ($80 million post). From what I hear, the company hasn’t set a valuation yet, but plans to wrap up funding by end of summer.

The company raised a small amount of capital last year. The company told me earlier it sees a large opportunity and wants to hire a bigger sales organiztion to help it move beyond serving ads within applications on Facebook and leading social networks. It wants to serve ads on other platforms where advertising can be made social, such as FriendFeed or Wordpress or on the iPhone.

A slew of new companies have arisen to serve ads and analytics on the iPhone, which is notable, because the precise location information, and potential to tap into communciations between people afford a whole swath of new social advertising potential.

We at VentureBeat have invited companies like Skydeck (which tracks your communication patterns on your phone) and new iPhone ad company MediaLets to MobileBeat, our conference next week, for demonstrations of their technology and their findings of the market thus far. Other companies like Pinch Media, which provides iPhone tracking stats and analytics, and Apploop, which offers repurposed CPC ads on iPhone apps, are emerging.

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SocialMedia, a San Francisco company trying to find compelling ways to advertise on social networks, is offering advertisers a new product: Something called “FriendRank.”

The company scans data about your activities on Facebook and other social networks, infers who your best friends are, and ranks them. Then the company exploits that ranking to serve you relevant ads.

It does so with something it calls “social banners,” which insert references to your best friends within advertisements.

The idea is that showing you ads that reference your friends will attract your attention and thus make the ads perform better.

I sat down with SocialMedia cofounder Seth Goldstein last week, who told me that the response rate to standard display advertising on social networks is abysmal. People click on ads about 0.02 percent of the time, he said, because people have started ignoring ads.

Thus the deperate need to interject your friends — to knock you out of your efficient browsing routine.

CNET uses the following example of a movie advertisement to explain how it works. Instead of simply showing you the movie ad, this product invites you to interact with the movie by inviting you to contact your friend about it.

[The] social banner would ask which of your close Facebook friends, among a short list, you’d like to invite to see the movie. Or a social banner might inform you that a friend Jim just ranked Iron Man with three stars, and it might ask to “click here to buy tickets at Fandango.”

See image below, which shows the example of an ad, with friends on the top right.

The word FriendRank is a play on Google’s PageRank, which became the breakthrough technology in the late 1990s to rank Web pages in results when you searched for things on Google.

The word FriendRank is not new. Notably, former Yahoo employee Jeremey Zawodny was talking about “FriendRank” more than four years ago; it’s also notable that Zawodny has gone to Craigslist, an advertising company well-known for its dismissal of Web 2.0 hype. Will Zawodny help Craigslist cook up something in the social advertising arena? Don’t know. But Zawodny, back four years ago, used FriendRank to focuse on the concept of “influence,” as opposed to simply who your “closest” friend is. It’s clear that sometimes you can be influenced by friends who aren’t that close but who you perceive as being more hip or important.

SocialMedia’s execs say FriendRank will look for positive reinforcement. If you tend to click often on an ad featuring a particular friend, that friend’s ranking rises within SocialMedia’s algorithm. Also, someone you don’t interact with at all won’t be part of your FriendRank. While your parents may be influential in your life, if they don’t interact with you much on Facebook, they won’t count for very much in SocialMedia’s algorithm.

SocialMedia finds out information about your friendships by watching who you play games with on Facebook or MySpace, or who you otherwise communicate with using other applications on those networks. SocialMedia is in a good position to get this data because it serves ads on hundreds of applications, which in turn can access certain profile data of the people viewing the pages.

The company said it has filed a patent on the algorithm it uses to aggregate interactions on social networks to determine what friends to display in its ads.

I’m unaware of any competing products. Facebook has used its own news feed to display advertising to users and is said to be working internally on using your friendship network to serve ads, but it hasn’t offered any feature with an explicit friend ranking like this. Myspace, in turn, offers what it calls hypertargeted ads, but it doesn’t go as far as tracking your friendships. Lookery, another ad company on social networks, says it targets demographics but also hasn’t articulated anything about friendship relationships.

Goldstein said the company now gets exposure to 20 million users a month via its placement on applications.

He also provided first signs about how the company is doing financially. He said his company had awarded $8 million to applications developers on Facebook and OpenSocial in the year through May 2008. SocialMedia is quiet on the exact percentage of the revenue it keeps from advertisers before passing it on to developers, but generally ad networks keep at least 20 percent, and sometimes they can keep as much as 50 percent. That gives SocialMedia at least more than a million in revenue a year, so it’s turning into a real business.

The company, which has taken $4 million in financing from CRV and angels such as Marc Andreessen and Jeff Clavier, is now profitable, with 25 employees in two offices, Goldstein said.

Goldstein said advertisers are still largely in an experimental mode placing ads on social networks but predicted advertising would increase strongly next year.

SocialMedia was earlier called Appsaholic, when it became the first advertising platform on Facebook. It allowed developers to promote their applications by letting them place ads on other applications (essentially a way to purchase traffic from other applications). While SocialMedia still lets publishers buy ads promoting “installs” across its network of application clients, the company has expanded into other forms of advertising. They include video, banner ads, branded sponsorships, and virtual currency.

He said the company is emphasizing brand advertising, not direct-response performance based ads.

In testing, the product showed users are two to three times as likely to click on the ads, Goldestein said.

Nick Gonzales, former writer at Techcrunch, is now working at SocialMedia, evangelizing the company’s products at the company’s blog. He said the company is taking security and privacy seriously.

The company provides consumers with a notice and a choice to opt out of sharing their information within the social network. From a privacy page, it also lets users opt out of the ad itself by clicking on a “what’s this” text.

SocialMedia, a company that lets small Facebook applications get exposure by bidding on ad links within Facebook popular applications, has just raised $3.5 million in financing.

Using the marketplace offered by SocialMedia, a Mill Valley, Calif., company, less popular Facebook applications bid to get ads placed on the pages of more popular Facebook application — thus, increasing their traffic. Advertising one application within another is an increasingly important way of getting Facebook users to try out nascent applications, as more and more applications launch every day.

SocialMedia (see our original coverage) raised the money from Charles River Ventures and angel investors and is poised to enter other social networks. Myspace, for example, announced last night that it would be launching its own platform for developers within the next couple of months. Hi5, Bebo, and other social networks with millions of users, are also planning to launch their own developer platforms.

SocialMedia already owns Trakzor, a popular Myspace application that lets users see who else has viewed their profile pages. Four million Myspace users have installed the Trakzor widget and one million use it per month, giving the company a natural starting point to advertise new Myspace applications — especially as developers without a presence on Myspace look to move in.

SocialMedia’s marketplace on Facebook lets an application owner with many active users — valuable ad space — sell space on its pages to other applications. See screenshot for example: The gray box featuring “Mobile Radar” is the ad.

The company also offers an analytics application on Facebook called Appsaholic, that provides data for app developers on how their ads are performing.

Interestingly, Marc Andreessen is one of the angel investors participating in the round. He also is the co-founder of Ning, the do-it-yourself social network.

Other investors include Jeff Clavier.

Socialmedia, which offer a marketplace for applications on Facebook to promote themselves by bidding for links, has raised half a million dollars.

The funding for the Mill Valley, Calif. company comes from Charles River Ventures and angel investors.

Called Appsaholic, the self-service marketplace lets Facebook application companies pay for links within other applications already on Facebook.

It is one more ad company in a quest to make money from from Facebook’s fast-growing community, now nearing 40 million users.

Other companies, like FB Exchange, are also offering ad networks on Facebook to help applications make money, that sells ads to other apps.

However, FB Exchange and the others don’t provide a self-serve marketplace.

If, say, Wal-Mart were to launch an app that features its employees of the month on users’ profiles, the company could use Appsaholic to buy ads promoting it across other applications.

To start making money, a Facebook app developer embeds code on their own app that serves the ads — which are really just paid links. Others can bid for these paid links in a live market. The price a bidder pays is determined not only by the market demand for the links, but by how many ad click-through’s their own application gets, and how fast it is growing in Facebook.

So if Walmart’s own application is popular, it pays less for the ads; if not, it pays more.

Winning bidders pay sellers through Paypal.

While revenue is still small, Yesterday, Appsaholic paid out ten thousand dollars to applications, chief executive Seth Goldstein tells us. Besides Appsaholic, Socialmedia has its own, successful applications, including Happy Hour and Food Fight.

The company also plans to expand to Myspace.