Study: Popularity of Social Networks Hampers Ad Growth

Group M Finds That Marketers in the U.K. Are Still Figuring Out to Advertise on Sites Such as Facebook

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The rise of social networking has triggered a fall in the growth of online advertising, according to a Group M U.K. media and marketing forecast. U.S. figures, to be released in a few weeks, are expected to reflect the same trend.
Group M's report also revealed that purchases at sites such as online grocer Ocado rose 34% in 2006.
Group M's report also revealed that purchases at sites such as online grocer Ocado rose 34% in 2006.

While Facebook has doubled in size globally over the past six months, to more than 30 million users, advertisers are struggling to profit from the popularity of social-networking sites.

In the U.K., MySpace is still the leader but is fast being eclipsed by Facebook's phenomenal growth. Facebook had four million unique visitors in June 2007, up 784% from October 2006, according to NetRatings. MySpace saw 27% growth in the same period to 6.6 million users, and Bebo's 4.3 million users in June represents 60% growth.

"It's hard for advertisers to get in there," said Karin von Abrams, senior analyst at eMarketer. "It's a tricky area, and it's foxing them. Social-networking sites are a more intimate environment psychologically, which means ads may not be welcome. Advertisers need to find a new way. It's part of the whole question of how to follow users 'round the web."

Richard Hedges, group account director at AKQA, London, said: "Because social-networking sites increasingly provide everything people want in one place, people are less and less interested in seeking out content on other sites. Ads can be an unwanted invasion, like having gatecrashers at your party. The challenge for us is to create content that complements the context and reflects the way people already behave on these communities."

For its Unilever client Pot Noodle, AKQA found 20 groups on Facebook already dedicated to the brand. So AKQA challenges those and other users once a month to make a film on a topical theme with a Pot Noodle twist. Each entrant is sent a case of Pot Noodle, and each month the film with the most hits wins a Sony PlayStation 3 console.

By contrast, when Wyeth Consumer Healthcare's Anadin discovered a number of groups dedicated to the wonders of its pain-killing properties, it decided that such genuine endorsement was valuable to make paid marketing unnecessary.

Group M predicts U.K. online-advertising revenue will still grow 34% this year and 30% in 2008. Those figures are substantially down from 48% growth in 2006 but still way ahead of the U.K. ad market's slight 2.6% growth overall.
Adam Smith, futures director at Group M
Adam Smith, futures director at Group M

"What other medium would like this problem of growing by one-third?" asked Adam Smith, futures director at Group M. He said the slowdown in online-ad growth is also due to a leveling off in both broadband penetration and time spent online.

Big in the U.K.
Group M also reported that U.K. online shopping rose 34% in 2006 to nearly $2,000 per person. Brits are online-shopping champions, accounting for half of all European e-commerce. U.K. supermarkets aggressively promote their websites, and the grocery-delivery vans that are a common sight on U.K. streets represent 10% of all U.K. online shopping. One of the most successful online grocers, Ocado, is partly owned by supermarket chain Waitrose and has annual sales of $600 million that are growing by 30% a year. Ocado claims more than 50% of online-supermarket deliveries in Greater London.

The U.K.'s biggest retailer, Tesco, is also one of the world's biggest online grocers, and another U.K. supermarket chain, Sainsbury's, estimates its online sales will more than double in the next three years.

Mobile advertising, meanwhile, is not yet big business and was dropped from Group M's forecast. "A lot of U.K. mobile advertising is given away, and operators will not release revenue figures," Mr. Smith said. "The future of mobile is as an adjunct to existing advertising, providing a return path for relationship management. It is not a medium in its own right."
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