Debra Aho Williamson, Senior Analyst
eMarketer has revised its US social network ad spending projections, estimating that advertisers will spend $1.4 billion to place ads on online social networks this year, down from the previous projection of $1.6 billion.
US online social network ad spending is now projected to reach $2.6 billion in 2012. In its last projection, made in December 2007, eMarketer estimated that spending would reach $2.7 billion in 2011. Spending in that year is now expected to be $2.4 billion.
eMarketer's figures take into account all forms of advertising within social networks, including display, search and video ads, as well as any fees that marketers pay to social networks to develop profile pages or conduct promotions.
For the first time, the new numbers also include widget and application ad spending. While widgets and applications can also appear on blogs and personal start pages, the majority of development has been for social network environments.
Today's economy, combined with the fact that social networks are still trying to come up with successful ad models, has led to lowered ad spending projections for the next few years.
Social networks still show some promise in developing new forms of online advertising. MySpace's HyperTargeting initiative, for example, has helped double CPMs at the site, and 75% of advertisers that have tried it
have come back for more, according to News Corp. Facebook's SocialAds concept attempts to improve the relevance of advertising by mining the connections between Facebook members.
Both sites will also see new revenue streams from local advertising and self-service advertising, in which marketers can execute ad buys using an automated system.
The challenge is that all of these new forms of advertising are more difficult to plan, measure and quantify than what advertisers are used to, and that has impacted spending growth.
eMarketer projects that US online social network ad spending will grow 55% this year, down from 163% growth in 2007. The good news is that spending growth at online social networks will be more than double the 23% growth that eMarketer projects for the total US online ad market. Social networks are among the most popular sites on the Internet—particularly for the hard-to-reach youth audience—and marketers will continue to look for ways to reach consumers at those sites.
MySpace will account for 53% of total US online social network ad spending this year, but it has had monetization difficulties.
Revenues at Fox Interactive Media, the News Corp. unit that is dominated by MySpace, fell to $210 million in the March quarter from $233 million in the
previous quarter, News Corp. reported in its earnings conference call last week. News Corp.'s fiscal year ends June 30.
As a result, eMarketer has lowered its forecast for 2008 US ad spending on MySpace to $755 million, from the previous estimate of $850 million.
eMarketer also lowered its 2008 forecast for Facebook ad spending to $265 million, from the previous estimate of $305 million. In addition to issues related to the economy, Facebook may also see a
short-term revenue dip if marketers use ad budgets to create applications for its platform instead of purchasing advertising. Facebook does not receive any direct ad revenue when marketers launch applications on the site.
Combined, MySpace and Facebook are expected to account for 72% of the total US social network ad spending pie this year. Spending at all other online social network sites (including general social networks, niche networks and marketer-created networks) is expected to reach $370 million this year, while widget and application ad spending is projected to rise to $40 million this year, from
$15 million in 2007.
At $1.4 billion, social network advertising will make up 5.5% of total US online ad spending this year. However, after 2010 eMarketer projects that social network sites will receive a lesser share of total spending, falling to
5.1% in 2012 after a peak of 6% in 2009-2010.
The revised US forecast also changes eMarketer's worldwide social network ad spending estimates. eMarketer now projects that advertisers will spend $2 billion on social networks worldwide in 2008, rising to $3.8
billion in 2011. The previous figure for 2011 was $4.1 billion.
Learn how social networks plan to conquer handsets. Read eMarketer's Mobile Social Networks report.