• by Mark Walsh  @markfwal, July 9, 2009

In its latest social network forecast, eMarketer projects that ad spending will suffer this year as a result of the recession and ad woes at MySpace in particular.

The research firm predicts that U.S. paid advertising on online social networks will dip 3% to $1.1 billion in 2009 before bouncing back with a 13.2% gain in 2010 to $1.3 billion as more companies focus on developing a social marketing strategy.

MySpace and Facebook continue to dominate the category. But eMarketer projects that U.S. ad revenue for MySpace will fall 15% this year to $495 million, while spending at Facebook will grow 9% to $230 million. Total ad sales for MySpace will reach $520 million for MySpace and $300 million at Facebook, where 70% of users come from outside the U.S.

In contrast to Facebook, traffic growth at MySpace has stalled, and the News Corp.-owned property last month cut 30% of its staff to reduce costs and gain greater efficiency. The move was preceded by the hiring of former Facebook executive Owen Van Natta in April to help turn things around at MySpace.

"Facebook, once a distant second to MySpace, has outperformed its rival in nearly every measure of usage -- and is on track to surpass MySpace in ad spending by 2011," noted eMarketer analyst Debra Aho Williamson in her report.

The $300 million estimate in total ad revenue for Facebook would even appear to be low compared to news reports this year putting the social network's 2009 revenue at $500 million. Mashable cites a Reuters article this week in which Facebook board member Mark Andreessen said the company will take in at least that amount this year and generate billions in revenue in the next few years.

Facebook earlier this year said it has had five straight quarters of profitability (excluding certain items), 70% year-over-year revenue growth, and was expecting to be cash flow-positive in 2010. In relation to the gap between the $500 million estimate and eMarketer's much lower one for Facebook, Williamson pointed out that the research firm's projection is limited to paid advertising.

While that total would still fall well below $500 million, Williamson added that Facebook would be hard-pressed to grow revenue 70% this year. "With total online ad spending slated to rise just 4.5% this year (according to eMarketer's most recent projections) it will be an immense challenge for Facebook to increase total revenue 70%," she said.

So, it doesn't include any revenue from Facebook's growing virtual gift business, estimated to generate up to $75 million this year. The company has also begun testing a payments system which she says could bring in several million more in revenue.

The firm will release another social network ad spending forecast in December, giving it one more chance to revise its estimate if things change significantly in the second half of 2009.