Is Social Network Advertising Ready for Primetime?
Mapping the social graph. — Let's get the bad news out of the way. — As a result of the poor economy and various difficulties at MySpace, paid advertising on online social networks in the US is expected to fall 3% in 2009.
Context & Ripple Effects
Two years after eMarketer framed the promise of social network advertising as a breakout channel, its own forecast now shows US paid social network spending contracting 3% in 2009. The reversal was foreshadowed by December 2008 coverage digging into the projected slump in MySpace and Facebook ad sales, which sits inside a broader pullback: Silicon Alley Insider had already warned that online display budgets would fall sharply in 2009.
What makes this a category problem rather than a macro one is MySpace. The company has spent 2009 managing a series of setbacks — an Events product rebuilt around the social graph after lagging Evite and Facebook, a MySpace Local partnership with Citysearch announced in March, and the removal of 90,000 registered sex offenders disclosed in February. With rumors of layoffs affecting 25% or more of staff and analysts assigning very low odds to a new search deal near the prior $900 million Google contract, the platform carrying much of the category's inventory is shrinking while it fights for revenue.
First-order effects
- US advertisers cut paid social network spend by 3% in 2009, making this the category's first down year just as overall online display budgets are also contracting.
- MySpace bears the brunt immediately: with its Google search-ad renewal unlikely to approach the previous $900 million deal, reported layoffs of 300–500 staff become a cost-cutting response to a widening revenue gap.
Second-order effects
- Advertisers reallocating away from social display push pricing power toward performance formats and toward Facebook, whose growth story is now pitched directly against MySpace's contraction within the same forecast.
- MySpace is forced to diversify beyond banner inventory — the Citysearch-powered MySpace Local tie-up and graph-aware Events product are attempts to monetize local business listings rather than pure display.
Third-order effects
- If the pattern holds, social network advertising gets repriced from a premium 'promise' channel into ordinary cyclical display inventory, forcing platforms to prove measurable ROI to keep brand budgets through downturns.
- Category-level weakness concentrates the market: a single dominant platform (Facebook) absorbing share while a struggling rival shrinks sets up the winner-take-most structure that determines who controls social ad supply going forward.
The trend: Social network advertising is crossing from its 2007-era hype cycle into a mature, cyclical display market where platform-specific execution — Facebook's rise versus MySpace's troubles — matters more than the category label.