"If companies can go even deeper to develop marketing efforts that fully embrace the one-to-one-to-many nature of social networks, ad revenues will soar," said Debra Aho Williamson, senior eMarketer analyst and author of its new report, "Social Network Marketing: Carving Out Some MySpace." "This way of advertising will spill over into other channels. The underlying concept will influence the way advertising is done in all media, not just online."
MySpace will generate $180 million in U.S. ad revenue this year, estimates eMarketer, while the entire area will attract some $280 million during the same period. That means ad spending on social-networking sites will account for just 1.7% of the $16.7 billion spent on U.S. online advertising in 2006. That percentage should rise to 6.3% by 2010, according to eMarketer.
Money outside MySpace
In 2006, eMarketer expects general social networks excluding MySpace (such as Friendster, Facebook) to earn $35 million in ad revenue, and vertical networks (such as LinkedIn, which targets business types) to draw $20 million.
Networks presently being offered by leading portals such as Yahoo 360 and MSN Spaces will only bring in $45 million in ad revenue this year, eMarketer predicts. Notably, YouTube is lumped into this group, indicating that the most popular video-sharing service online today is not expected to generate much ad revenue in 2006.
News Corp. Chairman-CEO Rupert Murdoch told investors in Australia in June that Fox Interactive Media -- of which MySpace is a part -- should have $350 million in revenue in calendar 2006, and expects close to $500 million in fiscal 2007 (ending July 31, 2007). Michael Barrett, Fox Interactive's exec VP-chief revenue officer, did not dispute these estimates when they were presented recently by Ad Age.
Analysts like what they see
So, despite the continued risks associated with social networking, a growing number of analysts are expressing confidence in the future of the phenomenon and its present leader, MySpace.
For example, Pali Research, the research arm of Pali Capital, maintained its "buy" rating on News Corp. today, due in large part to the fact that Citibank appeared as the lead advertiser on MySpace's home page.
"We have seen TV shows and movies appear on the home page of MySpace, but this is the first time we have seen a major financial-services firm buy the home page," Pali Capital analyst Richard Greenfield wrote in the research report. "We believe this illustrates that advertising on MySpace is moving into 'mainstream' advertisers, creating significant revenue-growth potential."
In the report, Mr. Greenfield reiterated the four revenue drivers for MySpace moving forward: safer "programmed" sections, like books and film, where brands can accompany edited content; sponsored pages bought by advertisers; increased targeting capabilities on personal profiles; and improved search functionality and increased paid-search revenue, which is expected to result from a pending deal with one leading search engine.