Ad Dollars for Social Networking Don’t Equal the Hype
When News Corp. President and COO Peter Chernin said in May that Fox Interactive (MySpace, et al.) would miss its second-quarter projections by 10% — coming in around $900 milllion — it gave media research company eMarketer a reason to take a closer look at social networking. The conclusion: the dollars don’t equal the hype in social network ad spending.
“Experimental advertising gets cut first in a downward economy,” said Debra Aho Williamson, a senior analyst at eMarketer, which on Aug. 4th re-released its projections for ad spending on U.S.-based social networks.
Marketers grappling with spending on social networks may be taking a risk because the jury is out still out on how effective social networks can be as ad vehicles, Williamson added. “They’re not sure what the results will be, so they fall back on the tried and true, and an understanding on where the [ad] money is going.” (The eMarketer report does not include ad spending on blogs but, rather, strictly focuses on social networks such as MySpace, Facebook and LinkedIn.)
Advertisers will spend $1.4 billion on social networking this year compared with $920 million in 2007, according to eMarketer. Such spending will surge to $2.1 billion by 2010. But while ad spending on social networks is expected to grow in the next several years, the percentage increase has already started to decline. What’s more, ad spending on social networks will through 2012 hover between 5% and 6% as a percentage of total online ad spending, which is nothing to write home about (see charts).
“You would think it would be growing but what we’re seeing in social networking is the [market] getting a lot more diffuse” in next few years, Williamson said. “You may not need to go directly to a social networking site, plus other forms of online advertising vehicles will emerge that will drive a lot of attention and steal some [ad] budget from social networks.”
The decline in percentage increases is a function of a maturing market. Nevertheless, there’s still a good deal of skittishness throughout corporate America about the wisdom of deploying Web 2.0 tools as ad vehicles.
Indeed, only 21% of business executives said they are extremely or very satisfied with their company’s use of Web 2.0 tools, according to a recent survey by management consulting firm McKinsey & Co. The report was based on an online survey, conducted in June, of 1,988 global business executives.
The top barriers to successfully building Web 2.0 initiatives include:
- the company doesn’t understand the potential financial return of Web 2.0 tools (28%)
- the company’s culture doesn’t encourage the use of Web 2.0 technologies (22%)
- the company doesn’t provide sufficient incentives to experiment with Web 2.0 technologies
“Companies are intrigued by Web 2.0 technologies and know that [younger] employees are comfortable with them,” Williamson said. On the other hand, “there are a lot of ways that private information can be misused and companies need to work through that to make [the information] safe.”
And like most marketing efforts, the threshold for developing Web 2.0 tools depends on the company and the market sector. “If you’re an old-line company, you’re going to be less willing” to embrace social networking, Williamson said. “But if you’re a new company or in the tech space, it makes a lot of sense.”
Matthew Schwartz is Senior Editor of ScribeMedia.org and host of the WebTV series, From Print to Digital.
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