Ad Spending on Social Networks to Reach $2 Billion by 2011; But is it Enough?

Updated figures from eMarketer indicate that businesses are even more interested in advertising on social networks than previously thought. While their December 2009 forecast on social network advertising for 2010 spending was $1.3 billion USD, the new numbers show a 30% increase in spending for 2010, bringing it up to $1.68 billion. And eMarketer predicts that spending will increase up to $2 billion by 2011. These numbers indicate that businesses are slowly opening up their eyes to the potentially lucrative social networking advertising market – but they still fall short of matching advertising dollars with actual time spent on social networks. Are businesses out of the loop?

According to eMarketer, 6.7% of all US online advertising spending in 2010 will be on social networks. However, Nielsen reports that as of June 2010, Americans spend 22.7% of their time online on a social network. So while advertisers are amping up their visibility on social networks, the dollars aren’t matching the viewers.

This might have something to do with the slow adoption rate of social media that businesses – and particularly their executives – have recently displayed. According to a recent report, non-profits are the number one sector when it comes to social media use and monitoring. The majority of CEOs do not participate in either internal or external social media, and social media is still not being used by the majority of businesses for employee engagement.. The fact that businesses aren’t using social media themselves could be part of the reason why they aren’t advertising to match users.

Or maybe, businesses are really ahead of the game. While the common mantra in advertising is that dollars should match eyeballs – so that businesses should be spending about 22% rather than 6% of their online advertising budget on social networks – social networks might still not be yielding the profits that other, more established, online avenues yield. ComScore released a report recently that measures the CPM for social network ads at just 56 cents on average, with the internet as a whole yielding $2.43. If it’s not lucrative, don’t expect businesses to jump on social networks in droves just yet.

Breaking down the eMarketer numbers, we can see where businesses are really focusing their social network advertising dollars. Facebook will receive half of all money spent on social networks in 2010, showing that businesses have a grasp on where the strongest, and most valuable, social graph currently is. Twitter is expected to grow from a minor advertising outlet to a potentially large one as its recently unveiled advertising structure proves effective.