January 2009: Social Networking Update

Industry Stats & Data by eMarketer

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Consumers flood social networking sites, ad support struggles to keep pace

Despite significant new ad formats launched in 2008, US social network ad spending will fall short of the $1.4 billion eMarketer projected earlier this year. 2008 spending will top out at an estimated $1.2 billion, rising to $1.3 billion in 2009. The declining US economy and slower-than-expected revenue growth at MySpace are two reasons for the lowered near-term forecast.

By 2013, US marketers are expected to spend $1.6 billion on social network advertising, a significant reduction from earlier forecasts. Although consumer usage of social networking sites continues to flourish, the ad support has not kept pace, and future forms of targeted advertising based on someone’s online social interactions—or “social graph”—are intellectually interesting but in practice will be extremely difficult to scale.

As growth in social network ad spending slows, its proportion of total US online ad spending will also decrease. In 2009, it will account for 5% of the $25.7 billion US online ad market. By 2013, its proportion is expected to fall to 3.9% of the projected $42 billion in spending.

MySpace still makes up one-half of all US social network ad spending, according to eMarketer’s estimates, while 18% of spending goes toward Facebook. US ad spending on MySpace is estimated to reach $585 million in 2008, down from our previous projection of $755 million. Likewise, spending on Facebook is expected to total $210 million in 2008, down from $265 million in our previous forecast.

Other social networks—such as LinkedIn, Classmates.com and niche sites—represent 29% of the ad spending pie, or $340 million in 2008. Widgets and applications amount to an estimated 3% of the total in 2008.

In the near term, some marketers that have had success with social network advertising will continue to spend money there. However, companies that have had poor results or have stayed on the sidelines over the past couple of years will take their ad dollars elsewhere rather than experiment when budgets are tight. The upshot is that any momentum the business has gained over the past two years will be significantly curtailed.

As a result, social networks will need to decrease their reliance on advertising revenues and develop other revenue streams.

Advertising is not the only way for marketers to participate in social networks. Marketers will still need to be where their customers are, and consumers remain heavily involved in social networks. The critical point is that social network advertising—banners, search ads and new ad formats—is simply not growing as expected. But other forms of social network marketing—encompassing tactics such as customer communities and influencer outreach—will proliferate.

Find out more about eMarketer's digital marketing and the new report, "“Social Network Marketing: Slow Growth Ahead for Ad Spending"

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