Like other forms of media that have gone before it, social media will ultimately become an advertising business, according to a new report. Analysts expect revenues from social media sites to reach $16.9 billion in 2012, with advertising contributing the largest share at $8.8 billion.
Of all the revenue models that social networks have tried, advertising remains the most profitable, according to a recent report from Gartner, Inc. The research company predicts that advertising revenues will climb 43.1 percent this year, compared to $11.8 billion in 2011. In the last year, many smaller companies including Tumblr and Foursquare have joined Twitter in allowing ads in their feeds.
Social gaming revenue, which more than doubled between 2010 and 2011, is expected to reach $6.2 billion in 2012, with virtual goods bringing in the most money. Traditional game publishers have also contributed to the overall growth of the medium with familiar games to drive adoption rates.
Other growing fields include online reputation management and public relations; as well as online payments, including content purchases and payment services like Paypal and Square.
Subscription revenue is still trailing behind, with a comparatively small forecast of $278 million for 2012. Gartner predicts that future paid services will have limited success. Even existing freemium services like LinkedIn and Xing saw a decline in subscription revenue this year.
Marketers are willing to devote more of their budgets to social media sites where users spend long periods of time, increasing the chance of click-throughs. Having access to bio data, friend lists, comments, and shares also helps them target specific demographics.
“New revenue opportunities will exist in social media, but no new services will be able to bring significant fresh revenue to social media by 2016,” said Neha Gupta, senior research analyst at Gartner in a statement. “The biggest impact of growth in social media is on the advertisers. In the short and medium terms, social media sites should deploy data analytic techniques that interrogate social networks to give marketers a more accurate picture of trends about consumers’ needs and preferences on a customized basis. In the meantime, however, they should also continue to exploit other channels of revenue like mobile advertising and social commerce.”
A full report is available here.
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