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My friend and fellow VC Raj Kapoor at Mayfield Fund has an insightful post about monetizing social networks. He believes social networks’ value is in the data, not in the inventory and I completely agree. In fact, this realization is the basis for our investment in Media 6 Degrees, who, so far, is the only company who has figured out how to do exactly this.

As Raj mentions, a new economy is developing around targeting data. As advertisers demand more performance out of the media they buy, the need for more precise targeting in the display space emerges. Data companies like Blue Kai and Exelate can sell you very specific audience based on a host of particular targeting criteria. Often times, the more precise your targeting, the smaller the audience you can reach. Media 6 figured out that social data is the key to both precise targeting and audience expansion. It is helpful to be able to target people who are interested in your product. It is better if you can also target their closest friends who are most likely to be interested in the same product based on the concept of homophily.

Today, the social nets have a treasure trove of data about their users and can put that to good use both in the service of advertisers and in making advertising more relevant for the end-user. It’s important to note that doing so in a way that actually produces great ROI for the advertiser is pretty hard. Media 6’s data scientists have been at it for years. It’s a new field (or at least a new application of a well-understood concept) and I look forward to seeing years of innovation in this space. It is fun to see interactive advertising technologists now spending lots of time with social scientists and behavioral psychologists.