In 2011, social networks are likely to surpass one billion unique members, according to a report by international consultant Deloitte. Also, they may deliver more than 2 trillion advertisements.
However the data shows that advertising revenues directly attributable to social networks may remain relatively modest compared to other media. With per member annual advertising revenue of about $4, that implies total 2011 advertising revenues of about $5 billion.
This is a divisive issue. Some people see social networking as the technology sector’s “next big thing” that will overtake search advertising. Others take the view the social network buzz is reminiscent of the dotcom bubble, it’ll pop and people will be disappointed.
Deloitte reports that the advertising revenues from social networks in 2011 are likely to be very significant in absolute terms: total industry revenues of $5 billion dollars and year-over-year growth of 40 percent are impressive numbers; individual companies may experience even higher growth rates.
Yet revenues on a per-subscriber basis are unlikely to match search or traditional media in the next year or two. Also, advertising rates, measured on a CPM (cost per thousand impressions) basis, are likely to remain low compared to other forms of online advertising as well as traditional media.
An assessment of social networks’ potential hinges on three metrics: subscriber growth, time spent on the network, and CPMs. But really, how can growth rates for these metrics continue their meteoric rise?
Mobile data might offer a better opportunity, particularly in developing countries where mobile penetration continues to rise steadily. However, delivering display advertising to mobile phones at volumes and prices sufficient to create a significant multi-billion dollar business may not be likely in 2011. In 2010, mobile advertising revenues for the UK – the largest market in Europe – were only about $40 million.
Bottom line in 2011, the story of social networks will continue to be written with no clear conclusion in sight, according to Deloitte. Social networks remain an emerging business founded on innovation; yet they have already achieved levels of market acceptance that might have seemed inconceivable just a few years ago. The question now is whether social networks can sustain their growth trajectory and find better ways to monetise value.
My own personal view: I do hope that social networks maintain their integrity as facilitators of relationships through communication and don’t become advert bill boards. Sure I want the site owners to recoup their investments and make a few bucks too. But ‘selling’ and adverts on such sites are a big turn off to users.