Social network advertising clearly has a bright future, and the prospects for future growth were confirmed by a new forecast from Borrell Associates, which predicts massive growth in ad revenues this year. My only question is: Where is this ad spending going to happen?
Overall the Borrell report, "The Social Networking Explosion: Ad Revenue Outlook" has social network ad spending increasing 68% from $4 billion in 2009 to $7.5 billion in 2010, then continuing to grow every year to about $38 billion in 2015. The 2015 figure will represent approximately a third of all U.S. online marketing spending. According to Borrell, 2009 ad spending was divided roughly equally between national brands, while half came from local advertisers. Meanwhile, approximately a quarter of the spending actually goes to promotions, not advertising.
For all these caveats, however, I'm still at a loss to figure out where the majority of the dollars are coming from, and where they are going to; I'm also not sure how to make the Borrell figures line up with other (much lower) estimates of social network ad spending.
For example, a report from eMarketer released in December 2009 estimated social network ad revenues in 2009 at $2.2 billion, a little over half the Borrell estimate. Even factoring in another third for the additional dollars which Borrell says go to promotions, that still comes to just $2.9 billion -- meaning there's over $1 billion missing. While that might be a rounding error for, say, the U.S. budget, it's a lot compared to the relatively small spending base of this young, growing medium.
Moreover, I have to wonder which social networks account for the current spending, as well as for the projected future growth. According to Facebook CEO Mark Zuckerberg, Facebook might make $1 billion in 2010, up from about $800 million in 2009. The separate (December 2009) figures from eMarketer have MySpace revenues at $465 million in 2009, decreasing 23% to $360 million in 2010. Twitter execs forecast $140 million in ad revenue in 2010, while Classmates.com had about $80 million in ad revenue in 2009 and is on course for similar performance in 2010.
All that adds up to about $1.35 billion in 2009 and $1.58 billion in 2010; depending on which estimate you are using -- Borrell or eMarketer -- that means there was somewhere between $850 million and $2.65 billion which went to other networks in 2009, and almost $6 billion going to other networks in 2010 (per Borrell). Understanding the peril of combining figures from different sources, and acknowledging that there are probably a number of smaller networks adding incremental ad revenues, I'm still at a loss to make the estimates even come close to adding up.
Erik, you're forgetting about all those applications that run on on Facebook and to a lesser extent MySpace. Think about all the revenue that Zynga alone is projecting for 2010. I think this should account for the missing revenue.
Good column, Erik. Some of the blur may also come from newly overlapping media. For example, how do you classify a mobile-friendly promotion that's emailed, texted, Tweeted and posted to Facebook?
Sean - Sharp observation, and another example of overlapping categories (Social? Games?).
There are many 'Social' media buys which are not directly with the network. Example yfrog.com hosts virtually all of the photo/video shared on Twitter. So the media placed on yfrog is a social buy but its not on Twitter. I wonder if all the content sharing sites are factored into their study.
Great post Erik I think we should consider the blog world and ad being ran since a great deal of traffic is being generated via social. bit.ly is doing a great job of exposing those traffic numbers would like your input on what we talk to on the Content Consumptions Graph http://bit.ly/aSxhFU and Social Intelligence should be a big impact when consider user interactions with the brand pushing for more social investment. @chasemcmichael @infinigraph
Thanks for pointing out the gap between eMarketer's 2009 forecast for social network ad spending ($2B) and the Borrell number ($4B). The questions is; Does Borrell know more 6 month later, or are the category definitions fundamentally different? You can get to a 2009 number around $2B by adding up the recent forecast for the big players. If you include earned revenue (microsites and fan pages) and long-tail blogs, Borrell may not be far off. I know there are hundreds of players like us that could add up to another $1B. And, I definitely see more than 68% year-to-year growth for 2010. So I can believe $3B in 2009 and $6B in 2010. For anything above that, Borrell must be including additional revenue streams that eMarketer is not including.
I'd like the answer to that as well, wish I could tell you it was all going to us but not the case.
If Social Media were just tweeting and posting, no way to get 6B. There're so many apps and goodies around that looks more like a big and complex tree to me.