Social Networking Services Growing, Advertising Not So Much
Framingham, Mass.-based IDC says in a new study that social networks will face slow ad sales until they can get users to do more than just keep up with friends. That's because members of social networks such as Facebook, MySpace and Bebo tend to click on ads less than the U.S. Internet users overall.
Nearly 80% of all U.S. Web users clicked on at least one ad in the past year, compared to only 57% of online social network users. The higher click-through rate for the general Internet population also led to a higher proportion of purchases--23% to 11%.
Why the difference? "The fact that people use social networking services for communication puts them in a mindset that is less receptive to advertising than when they're using other Web sites like Yahoo or Google," said Karsten Weide, program director for digital media and entertainment at IDC.
He added that email and Instant Messaging services--also used primarily for communication--show similarly low ad-response rates.
At the same time, social networking properties continue to gain in popularity. More than half (54%) of online users are members of social networks, up from 43% a year ago. The demography of users also more closely mirrors the U.S. population, with social networking sites now reaching more than half of 35- to-44-year-olds and more than a third of those ages 45-54.
"It's not just teenagers anymore. It's pretty balanced," Weide said. Attracting a broader, more affluent cross-section of consumers will not necessarily translate into more ad dollars for social networks, however. To boost ad sales, they have to go beyond just giving people another way to communicate, according to IDC.
"What needs to be fixed is ad effectiveness, and the only way to fix it is to get people to do stuff on social networks other than communicate," Weide said. That means encouraging activities that more readily lend themselves to advertising such as sharing media, consuming media, playing games and collaborating on applications.
Facebook certainly helped spark the explosion of Web applications last year by giving third-party developers access to its network. But developers were the main beneficiaries of that move, since they were allowed to keep ad revenue generated by their apps on Facebook.
IDC does not hold out much hope for "social advertising" efforts undertaken by Facebook and others that aim to tap into users' Web of online connections on behalf of marketers. The research firm gives the example of a publisher showing a car manufacturer's ads to a user's contacts because that person's online behavior has indicated interest in a particular brand of cars.
"For consumers, that idea is pretty much stillborn," Weide said. The IDC survey showed that only 3% would allow publishers to use contact information for advertising. Because of privacy concerns, marketers "at the very least, need to tread very carefully with this type of technology," he added.
Facebook faced a backlash last year when it shared members' e-commerce activities with their friends on Facebook without their explicit permission through its Beacon program.
MySpace, which has taken a more traditional approach to advertising, has also struggled to monetize its vast amount of inventory. "As long as the problem of lower ad effectiveness is not solved, (social networking sites) can try more intricate, custom-built ad solutions such as games, sweepstakes or mini Web sites, with the understanding that there may be limits to the scale of such campaigns," advises the IDC report.
The study, the latest installment in its series of surveys on consumer online attitudes, was based on responses from a sample of U.S. residents ages 13 or older who use the Internet at least once a month. The field research was conducted June 19-26.