• by Lynn Russo Whylly , February 22, 2007

U.S. ad spending to reach $2.2 billion by 2010

Social networking sites were born out of consumers' desire for greater control over their content consumption and entertainment choices. Advertising on social networking sites was born out of marketers' need to reach consumers in an environment in which they might actually pay attention. And as the Internet population continues its mass migration toward social networking, more and more advertisers will latch on for the wild ride. U.S. ad spending in social networking sites is projected by eMarketer to reach $865 million in 2007 and $2.2 billion by 2010, up from $350 million in 2006.

Currently, the most popular ad model on a social networking site is a profile page, according to Debra Aho Williamson, senior analyst at eMarketer. "That's big, but that's also just the starting point. What marketers are doing from there is buying basic banner ads, doing a home page takeover, or a video pre-roll. There is search advertising as well, which is just starting to take off."

Williamson notes that Bebo, the leading social networking site in the UK, launched advertising widgets - a function that can be added to a profile - while Facebook has sold sponsored groups, where advertisers can post comments, interact with people, send them offers, and create contests. Facebook is also selling advertising within RSS feeds.

MySpace is leading the competition for ad dollars. For example, eMarketer forecasts that MySpace will capture $525 million in ad spending this year, while other sites, including Facebook, Pizo, and Friendster, are projected to reach $200 million. Portals will generate another $95 million, with vertical and marketer-sponsored networks garnering another $45 million.

Social networking will also achieve critical mass globally. Worldwide spending will top $1.1 billion this year and $2.8 billion by 2010, again with MySpace leading the way. Last year, MySpace launched in Australia, France, Germany, Ireland, and the UK, with its worldwide visitor count growing 245 percent, according to comScore Media Metrix.

Three-quarters of social networking advertisers fell into four categories: entertainment, retail, telecom, and Web media. Ad space on social networking sites, particularly video spots, is filling up incredibly rapidly, according to eMarketer. Conversely, social networking is also growing more niched, with an increasing number of vertical networks for sports, demographic groups, and pets, among other segments. (The researcher doesn't consider YouTube a social networking site.)

Overall, page views for MySpace grew 263 percent for the year 2006, while Facebook grew 160 percent, according to comScore. The average number of minutes spent at these sites also increased. While consumers spent 12.4 percent more time online last year, their use of MySpace increased 184 percent and their use of Facebook rose 30 percent. Conversely, sites such as Xanga, Classmates, Tagged, and Bolt saw double-digit percentage drops in usage.

The future holds nothing but more change. Along with the addition of social commerce, international growth and more brand-specific networks is anticipated, "Expect a shakeout of networks," says Williamson. "Right now, everybody wants to have a social network. It's a hot, sexy component. But they won't all survive. People have a limited capacity to the number of networks they can be a part of and I think we'll see a shakeout in the next couple of years. It's natural, and it has to happen."