Social Networking Sites and Advertising

Social Networking sites are used by millions of people around the work and thousands of new users are jumping on social networking sites every day. Almost all of these social networking sites and new entrants are dependent on the advertising to generate the revenue to keep them going. However, a study by BurstMedia shows that consumers have a very low tolerance for online ads.

52.6% of those surveyed accepted that advertising will appear on a web page but they had very low tolerance for more than 2 advertising units per web page. 29.9% of survey respondents said that they will leave the site immediately if they perceived it cluttered. Women are more likely than men to abandon the site. (Have lots of ads on the site and can’t figure out why people are abandoning, this might be a reason, time to do some testing)

It is not only the publishers who are negatively affected by the ad clutter but also are the advertiser’s products and services. 52.4% respondents has a less favorable opinion of an advertiser when their advertising appears on a web page they perceive as cluttered.

A study by IDC shows that the users are less tolerant of Social Networking Services (SNS) advertising than other forms of online advertising. Ads on SNS have lower click-through rates than traditional online ads (on the Web at large, 79% of all users clicked on at least one ad in the past year, whereas only 57% of SNS users did), and they also lead to fewer purchases (Web: 23%; SNS 11%).

Lack of ad effectiveness and slowing economy is making marketers cut their spending on Social Networking sites.

Market research firm eMarketer has cut Social Network ad spending estimate for 2009 to $1.3 billion down from $1.8 billion it projected earlier. It has also lowered 2008 estimated from $1.2 billion from $1.4 billion.

“As consumer usage of social networking sites continues to flourish, advertising has not kept pace,” a release from eMarketer explained. “In 2008 and 2009, the recession will affect all forms of online ad spending, but experimental formats, such as the ones available on social networks, which cannot always demonstrate a proven return on investment, will be hit particularly hard.”

So what should Social Networking sites do? Charge customers for the using the site? Nope, that is not going to work either. A recent AdAge study showed that no matter how much consumers hate advertising but they are not even going to pay for their favorite sites.

According to IDC Lower-than-average ad effectiveness on SNS will continue to contribute to slow ad sales unless publishers get users to do something beyond just communicating with others. If the major services succeed in doing so, they will become more like portals, such as Yahoo! or MSN, and they will come closer to the audience reach of the top services. If that happened, publishers would be better able to monetize their SNS.

Side Note:

eMarketer has also cut its overall online ad spending estimates

It reduced 2008 to $23.6 billion from its August estimate of $24.9 billion. The online ad growth is still increasing and is expected to be 11.3 percent higher than 2007. In 2009 this increase will be 8.9 percent over 2008.
Hardest hit is the display advertising, for which the growth rate estimate was cut from 16.9 percent to 3.9 percent. Search ads are expected to grow at 21.4 percent in 2008, its lowest level so far. Next year the search-ad growth rate should be at 14.9 percent, the company predicted, dropping to 10.4 percent in 2013.




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3 Replies to “Social Networking Sites and Advertising”

  1. Great summary Anil

    I have found the ads displayed on SNS (such a facebook, youTube, friends reunited etc) to be completely irrelevant to me and repetitive – the same ad repeatedly shown even though I have seen it before (though perhaps that’s a lack of ad inventory on the SNS). Despite the irritation, I would not pay to have them removed. I am not against the idea in principal, just that the volume of sites makes it unworkable for me.

    The only exception for ad relevancy I have come across is LinkedIn.

    Do you have any ideas on how the current fine balance of SNS useful content versus annoying, endless repeating banner ads can be improved? Perhaps contextual text ads really is the only way forward…

  2. Today many are interested in using social network sites. There are lots of visitors to these sites. People who visit are only interested in chatting and making friends. I think they would not be interested on the ads that are displayed on the social network sites. That is reason the ads on the SNS has less sale than other online advertising.

  3. Social networking sites can definitely help generate leads, and I’ve proven them myself. I also believe on the processes being taken by companies these days, and that is the use of lead analytics. However, these can only get you far. You need to pair them with more comprehensive and web-based lead management systems that will not only analyze leads but allow you to track, score, and distribute them.

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