• by Mark Walsh  @markfwal, October 28, 2008

Four in 10 online consumers have made a purchase based on advertising they saw on a social media site, while almost three-quarters welcome brand advertising on social networks, according to new research from Razorfish.

The Seattle-based agency's second annual "Feed: Consumer Experience Report" found that people are actively embracing social media and new communication tools like Twitter and are more open to advertising than commonly assumed.

"What struck us was the massive impact of search, social media and widgets and feeds on the consumer landscape... and how that's creating a more distributed experience for consumers, and they love it," said Garrick Schmitt, group vice president of experience planning at Razorfish and editor of the study.

The agency's research was based on a June survey of 1,000 "connected" consumers ( who spend money online and have broadband access) in four age groups from 18 to 55. Participants were 44% male and 56% female, and were located in 10 metropolitan areas nationwide.

Razorfish said it chose to focus on connected consumers to avoid duplicating research on online user behavior by organizations such as the Pew Internet & American Life Project and Forrester Research. This group of sophisticated Web users also proved to be marketer-friendly--with 76% saying a wide range of brands including Nike, Virgin and Bank of America should advertise on social media.

Given the findings, one might expect social networks to be overflowing with ad dollars. But social sites and Web 2.0 tools such as feeds and widgets have not yet turned into advertising bonanzas because of the vast but fragmented amount of online inventory they have helped create.

Top social networks such as MySpace and Facebook have introduced behavioral targeting systems to help advertisers zero in on certain audiences, but such efforts are still in an early stage.

The Razorfish report acknowledges that the various forms of emerging media are "challenging publishers, advertisers and marketers to meet their needs in new, distributed and largely uncharted territories--many of which have no analog touchpoints--and to provide services that have no immediate monetization models."

Despite the hurdles, "people are reacting to brands in social media, whether paid or unpaid, and it's influencing how they make purchasing decisions," said Schmitt. The key is creating campaigns offering content and features that blend seamlessly with social platforms.

"Content, in our view, will become advertising--both for brands looking to reach and engage consumers and for publishers who will look at content as an acquisition vehicle for a broader audience," according to the report.

For retailers, personalization of online stores via features such as recommendation engines is a strategy for adopting social features to drive sales. The study found that 65% of those surveyed have made a purchase based on an automated recommendation triggered by past purchases.

The same percentage of consumers said loyalty programs such as Amazon's Prime and Best Buy's Reward Zone, which offer "points" or other incentives, influenced buying decisions. "For retailers, it's not just about pure price, but value-added things like recommendations that cause people to really engage," said Schmitt.

While the rapidly deteriorating economy is already having an impact on online ad budgets, Schmitt doesn't expect social media to be affected. "We probably won't see a pullback because it's still a very small percentage of marketer spending," he said. "And every client I talk with is adamant about having a strong social media component to everything."

Emarketer earlier this year reduced its forecast for social network spending from $1.6 billion to $1.4 billion, citing slower-than-expected growth at MySpace and Facebook. That revision came well before the financial crisis hit this fall, further lowering overall ad spending projections.