Commentary

What's Holding Back Social Network Advertising?

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From all the press coverage, it seems like 2010 is going to be the year of social media in terms of online advertising, and especially social networks -- most prominently Facebook, MySpace, and Twitter. But a look at recent ad revenue forecasts definitely tempers the cheery outlook somewhat: Yes, there will be sustained growth over the next couple years, but it will be in relatively small increments, and social network advertising will remain a small -- in fact, decreasing -- part of total online advertising. This naturally leads me to wonder: What's holding social network advertising back?

The most recent forecast I have access to, from eMarketer, has total social network ad revenues rising from $1.2 billion in 2009 to just under $1.3 billion in 2010 and $1.4 billion in 2011, for a cumulative annual growth rate of about 7.5%. This is respectable -- enviable, even, from the traditional media standpoint -- but it can only be described as a disappointment following explosive growth rates of 150% in 2006-2007 and 34% in 2007-2008. In fact, in dollar terms the anticipated increases of $100 million per year are also less than previous year (over $500 million added 2006-2007, and $300 million 2007-2008).

Even more telling, the predicted growth rate for social network advertising revenue is lower than much larger, better-established online categories like search and display. Again according to eMarketer, search revenues are forecast to 13% in 2010 and 12% in 2011, while display will rebound from a -3% growth rather in 2009 to 19% growth in 2010 and 2011. Or compare it with behavioral advertising revenue, which is supposed to grow 22% in 2010 and 20% in 2011.

Of course, comparing search, display, and behavioral with social networks isn't an "apples-to-apples" comparison, as it contrasts methods of advertising with an advertising venue or medium -- but it seems valid, in light of the fact that most social network advertising is still either search or display, and will probably incorporate more behavioral targeting too. In other words, it would appear the growth rates of these different kinds of advertising are all depressed in the social network arena, versus elsewhere in the digital universe. Is this a fair statement to make? And if so, what is the reason?

Looking back at previous, much more positive eMarketer forecasts, I wonder if something has happened in the last two years to limit the potential of social network advertising, or at least the perception of it? Back in December 2007, eMarketer predicted social network advertising revenues of $2.7 billion -- almost twice the more recent estimates. Of course the intervening period brought the Great Recession, which must have something to do with the big downward revision, but the fact is eMarketer hasn't lowered its forecasts for search or display ad growth nearly as much. And social network advertising's share of total online advertising is supposed to decrease, per eMarketer, from 5% in 2009 to 4.7% in 2010, 4.4% in 2011, 4.1% in 2012, and 3.9% in 2013.

So what's holding social network advertising back?

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8 comments about "What's Holding Back Social Network Advertising?".
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  1. Scott Meadow from MCP LLC, March 4, 2010 at 4:34 p.m.

    I think that we will see the rise of more defined, interest specific social networks in the very near future, these will not be CPM or CPP models but have greater advertiser revenues based on branded entertainment models. For example, a social network devoted to soccer in Brasil (www.kigol.com.br and futebollivre.com.br) are gaining both members and advertisers attention every day.

  2. Steve Sarner from if(we), March 4, 2010 at 4:49 p.m.

    Great question and Scott makes some very good points.

    To the topic specifically - I believe there is still a lot to be figured out by the forecasters, clients and publishers themselves. A lot of "BT Display" is going to run on Social Networks - it already does. Is this part of the forecast for social specific? What about all of the ads on apps - is that revenue in the forecast? A lot will be integrated into social games - that is just emerging now. And a lot will also be captured with location based social nets that are in the the earliest stages of development. Also - self serve platforms could become huge new streams too.

    On top of all that - a lot of social ad spends are going into "social PR" to build and maintain communities, fan pages and the like. Perhaps it is too difficult to put a number against it - all these variables that do not fit neatly in to the way media has been both bought and consumed in the past...so providing a conservative forecast is safe.

  3. Ken Truman from tSunela, March 4, 2010 at 5:33 p.m.

    What's holding spend back? For our agency, it's the extremely low quality of traffic from Facebook ads vs other display placements. While the traffic is extremely cheap (and a viable medium) at this time, if significant price inflation were to occur Facebook would no longer be a feasible option.

    In other words, part of what is holding social media spend back could simply be the marketplace reaching it's price point equlibrium.

    Beyond that - Steve has a great point. The real power of social media for advertisers lies not in paid placements or apps, but in the building of communities. An investment not reflected in the eMarketer study.

  4. Patrick Madden from I-Behavior, March 4, 2010 at 5:42 p.m.

    I think the limited targeting that Social Networks can offer are keeping a lot of mid-major advertisers away. They need something more specific, like transactional data, and the Social Networks need to figure out how to safely incorporate that into their capabilities. After all, end of the day, you are what you buy, not necessarily what you say you are...

  5. Kevin Mcfall from Red Clay Digital, March 4, 2010 at 6:05 p.m.

    In my humble opinion, I believe this to be the wrong question to ask from a holistic perspective. What could be the focus of the discussion is the acknowledgment that not only the traditional advertising models have been turned upside down, but what we new to be interactive or digital advertising strategies have also been imploded by the fact that the media landscape has become so incredibly fragmented and that there are now an incredible number of options to reach an increasingly infinite number of specific audiences all enabled by today's social and community naturalistic web. I think this presents a tremendous opportunity for advertisers and publishers/influencers/community aggregators, etc. to meet one another's goals. The thing holding back a burgeoning industry from seizing the opportunity is not the limited overall spend online and the associated carve out for social platforms, but the reluctance to lead and embrace the revolution. I still have conversations with agencies and direct brands that are reluctant to place their brand in the context of a social or community experience despite the ability to know more about that audience than they've ever know before. Why are we still stuck there? The answer will set the industry free, I promise.

  6. Paul Sevensky from Marywood University, March 5, 2010 at 9:12 a.m.

    Probably just a minor point, but the ability of a browser like Firefox (when coupled with its very popular Ad Block Plus add-on) to wipe Facebook sidebar ads from view would seem to cut into an advertiser's ability to tap the total FB audience. Firefox now commands about 24% of the browser market. This might be an issue in measuring effectiveness.

  7. Jordan Hodgson from MSR Communications, March 5, 2010 at 2:18 p.m.

    I agree with Scott Meadow in the sense that niche "hobby" related social networks will take market share from the larger generalist networks.

    As they do so, companies such as Nike and Reebok would die to advertise directly to the enthuiastic trend setters such as the figurative "Runners of America network" etc.

    Advertising on social networks will become more than simply targeting keywords and demographics---companies will advertise their products directly to a concentrated and focused market.

  8. Howie Goldfarb from Blue Star Strategic Marketing, March 8, 2010 at 11:01 a.m.

    Issue is where and how you advertise. The live news feed and twitter stream have such high volume people fail to read or view 70-90% of the stream. If your ad isn't seen then what is the point. Secondly for twitter there is a very dark undercurrent of hate filled, racist hashtags. It is worst for the political right (including the GOP congress) but the left has their share. And does a blue chip company want an Ad placed next to Obama the Nazi or Beck the Nazi Tweet?

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