Led by MySpace, now the seventh most visited site in the US, social networking is a bone fide cultural phenomenon, but, as an advertising revenue model, it is still "under development."
Even so, eMarketer estimates that this year experimenting marketers will spend $280 million on social network marketing in the US, and an additional $70 million in international markets, mostly to create profile pages and sponsored promotions.
"Although MySpace is on track to generate an estimated $180 million in ad revenue this year, its long-term prospects are anything but certain. The site must deal with myriad issues, ranging from sexual predators to unsavory content," says Debra Aho Williamson, eMarketer Senior Analyst and author of the forthcoming report, Social Network Marketing: Carving Out Some MySpace. "On the other hand, it is adding members at a rate of more than six million a month and has more than tripled its number of monthly visitors in the past year."
The good news is that social networking is an area where many marketers are eager to test the waters. The bad news is that, in time, many social networking ventures will no doubt be shelved as grand experiments.
"The overall concept of social networking is a powerful thing and it is not going away," says Ms. Williamson. "The underlying concept will influence the way advertising is done in all media, not just online."
People use social network sites to form connections with other people and bridge their online life with their offline life. And companies whose business is built on creating buzz need to tap into those connections in order to effectively market to tastemakers. Social networking, by bringing together friends and strangers alike, enable instant communication and provide an easy way to share content (whether self-created or from another source) and offer a single source for viral marketing and word of mouth.
"Hollywood studios and automotive companies have been at the forefront of social network marketing. They are businesses with a steady stream of new products to promote," says Ms. Williamson. "But even for companies whose products are more mundane, or not youth-targeted, social networking provides opportunities."
Social network ad spending will account for 1.7% of the $16.7 billion spent on US online advertising in 2006, rising to 6.3% in 2010.
Globally, social networking will be an estimated $350 million business in 2006, rising to $2.5 billion in 2010.
"Regardless of the social networking venue that marketers use, gaining an understanding of how messages are spread virally and involving customers (and potential customers) in the marketing process are two things that will surely pay off in the future," says Ms. Williamson.