• by Mark Walsh  @markfwal, December 22, 2009

Marketers will spend $1.2 billion in paid advertising on social networks in the U.S. this year -- a 3.9% increase driven mainly by Facebook's rapid growth, according to a new eMarketer forecast.

Worldwide, paid social network advertising is expected to increase 12% to $2.2 billion this year, and to $2.5 billion in 2010.

The Web research firm slightly adjusted its prior projection of a 3% drop in U.S. social ad spending in 2009, and predicts a 7.1% increase to $1.3 billion next year. Facebook will account for a quarter of all U.S. ad dollars in the category by 2010, gaining market share at the expense of MySpace.

While eMarketer expects Facebook's U.S. ad revenue to increase from $335 million in 2009 to $450 next year, MySpace will contract from $465 million to $360 million. That translates into a 34.7% share of spending for Facebook, compared to 28.7% for MySpace.

The shift reflects the emergence of Facebook this year as the premiere social networking property for marketers. "Every agency and marketer I talk to over the past couple of months has said that Facebook is the place they have to be," said eMarketer analyst Debra Aho Williamson.

That sentiment stems in large part from the site's surging audience growth. Facebook boasts 350 million users worldwide, and in November cracked 100 million monthly U.S. visitors for the first time to become the fourth-largest Web property overall, according to comScore. MySpace's U.S. audience, by contrast, had fallen to 64 million as of October.

The site has also broadened its demographic reach, while MySpace is narrowing its scope to focus on areas like entertainment, movies and music. "Its appeal to marketers is going to narrow as well," said Williamson.

But the report also emphasizes that most of the spending on Facebook and other social networks will go toward earned media-viral promotional efforts that do not involve spending on traditional paid ad formats.

"eMarketer believes that when companies budget for social media marketing in 2010 and beyond, a substantial portion of their expenses will go toward creating and maintaining a fan page, managing promotions or public relations outreach within a social network," states the report.

Paid advertising will be used to drive traffic and engagement to the wider social network presence. The key for Facebook will be to persuade marketers to devote increasing dollars to paid campaigns to promote their fan pages on the site.

Still, Williamson believes marketers' focus in the next year will be on building out their earned media strategies, "really understanding how to interact with with consumers though a fan page and doing what they can with as little paid advertising as possible," she said.

eMarketer also predicts that social networks will increasingly take a larger portion of local online ad dollars. It notes that Facebook's self-serve ad system, catering mostly to small and local businesses, is generating a significant chunk of its ad revenues. With the expansion of Facebook and other social sites onto mobile devices, location-based services and geolocation technology will create further opportunities for local advertising.