Ad Spending On Social Networks Will Continue To Grow In '08

by Mark Walsh, Monday, Dec 17, 2007 7:00 AM ET

AD SPENDING ON ONLINE SOCIAL networks worldwide will nearly double, to $2.2 billion in 2008 from $1.2 billion this year, according to an eMarketer study being released today. Most spending will come from the U.S., where social network advertising is projected to grow to $1.6 billion next year, from $920 million in 2007. MySpace and Facebook dominate U.S. social network advertising, claiming 70% of ad dollars.

That's still a fraction of overall U.S. online advertising, which eMarketer estimates will hit $21.4 billion this year.

The ad growth is fueled by an expanding social networking population. Emarketer estimates that 37% of U.S. adult Internet users visited a social networking site at least once a month in 2007. By 2011, almost half of adult users and 84% of teens will be on social sites.

"The continued growth of social networking seems assured unless teens stop social networking as they become adults," said eMarketer senior analyst Debra Aho Williamson, in a prepared statement released Friday providing key findings. (The full eMarketer report, "The Promise of Social Network Advertising," will be released today.)

Converting large and growing audiences into significant ad revenue is the challenge for top social networking sites. To that end, Facebook and MySpace are diversifying ad opportunities beyond marketer profile pages to formats including search, display ads and widgets.

Michael Barrett, chief revenue officer at Fox Interactive Media, said at the recent UBS Media conference that MySpace now gets about 40% of its ad revenue from brand advertising, 30% from search, 20% from performance-based ads sold directly, and only 10% from inventory sold via third-party ad networks.

Both MySpace and Facebook have also recently unveiled behavioral ad platforms aimed at mining the voluminous personal data users provide through profile pages and other site activities for the benefit of advertisers. "If social network marketing delivers on its promise of peer recommendations, the flow of advertising dollars will turn into a flood," Williamson said.

But privacy issues raised by social advertising and "hyper-targeting," highlighted by Facebook's stumble with its Beacon program, suggest that capitalizing on social networking activity won't be so easy for marketers. And given the incremental growth of Internet advertising over the last decade, social advertising isn't likely to turn into a gusher anytime soon. In fact, it's not yet clear whether it will ever turn into a gusher.

Furthermore, the eMarketer study forecasts that global growth of social network ad spending will gradually slow to 16% by 2011, for a total of $4.1 billion.