Friday, December 12, 2008

Dip Coming for Social Media Ad Revenue?

December 11, 2008
MySpace drags down social networking outlook

Social networks have unveiled a slew of new advertising formats this year, but they don't appear to be working, as eMarketer has scaled back its social network ad spending predictions for the second time this year.

The latest projection estimates advertisers will spend $1.2 billion on social networks this year, down from a projection of $1.4 billion made in May. Social network advertising will grow in 2009, but only to $1.3 billion, which is down from eMarketer's previous forecast of $1.8 billion.

A large reason for the revised estimates is the poor performance of MySpace. The News Corp.-owned social network, which highly touts its hyper-targeted ads, scrambled earlier this year when revenue fell short by $100 million. Now, eMarketer has scaled back its forecast for ad spending on MySpace by close to 23 percent -- a nearly $200 million difference.

Facebook, which has fought long and hard to prove its ads work, isn't fairing so well either. It will receive $210 million from advertisers this year, which is considerably less than the estimated $585 million for MySpace, and a 21 percent drop from eMarketer's earlier prediction. MySpace and Facebook account for 70 percent of social media ad spending.

My Take

Social media advertising will find its level. The key to an effective financial model will be to tie the cost of the media to the results it delivers. And allow the businesses to set their rates.

With social media this is possible.