Commentary

Behind the Numbers: The Death of the Party

Social spends are being revised

The dollars pouring into social media might be slowing. eMarketer now projects that while advertisers will spend $2 billion on social networks worldwide in 2008, that figure will rise to $3.8 billion in 2011 — an estimate revised down from $4.1 billion after MySpace announced it would miss its revenue targets by about 10 percent.

Shrinking ad budgets are to blame. “Advertisers have started to cut budgets, and often, what gets cut first is experimental spending where you don’t know the results,” explains eMarketer senior analyst Debra Aho Williamson, who calculated and reported the projections in a May update to her December 2007 social network marketing report. She says the companies most
likely to pull back are those focused more on traditional media, while more forward-thinking advertisers are continuing to fund experimental marketing initiatives like social media.

“There are few proven avenues within social media today,” adds Emily Riley, senior analyst of JupiterResearch (recently acquired by Forrester Research). “Marketers that have done the best are willing to listen to and react to consumers, so it takes a change internally as well as a change in the tactics you are going to use.”

Williamson feels that social network ad spending will hit a saturation point by 2010, peaking around 6 percent, before rounding out at 5.1 percent in 2012. “At that point, your social network will be something you take with you from place to place, not necessarily a place that you visit,” she says.

Even B2B marketers are taking advantage of the medium’s benefits. U.S. B2B marketers will spend an estimated $40 million this year to reach their business audience via online social networks, up from $15 million in 2007, according to Williamson’s report, “B2B Marketing on Social Networks: Engaging the Business Audience.” And by 2012, B2B companies will spend more than $212 million in online social media, accounting for 8 percent of all online social media ad spending, up from 1.6 percent in 2007.

Renewed interest in LinkedIn, whose audience has more than doubled in the past year (to 25 million from 11 million in 2007), means it’s seizing substantial market share; even Facebook is capturing a slice of the B2B pie. However, eMarketer reports that most of the money is going into companies’ own social networks, which they’re building for partners, customers, suppliers and vendors, a category in which both LinkedIn and Facebook will launch services; Microsoft, Mzinga and others are creating software to do the same.

Among B2B marketers interviewed by the Software & Information Industry Association, nearly one-half (48 percent) said they already use social network technologies, either internally or with partners. More than 80 percent agreed that social networks could help them reach new audiences and increase user engagement and loyalty. A similar McKinsey study found that 28 percent of worldwide companies are using social networking, and ranked the technique as more important than blogs, wikis, video-sharing and podcasts.

Companies are more likely to increase spend on basic online marketing tactics, such as Web site development, e-mail and search, rather than on social media, says eMarketer, which ranked it 11th behind peer advice/word-of-mouth, vendor/industry-specific Web sites, and conferences/trade shows, among others.

Five years from now, “social media will be indispensable, equivalent to a combination of brand marketing and customer service today,” Riley says. “I think we’ll see social media become so integrated in the way the Web works that it will be hard to make it a separate category.”
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