The advertising bubble

continues to pop. The money ‘graphs:

  Market research company eMarketer recently cut its estimate of advertising spending on the social networking sites, including Facebook, MySpace and Bebo, this year by $455 million to $1.3 billion. It said US advertising spending on Facebook will fall by 20 percent to $602 million.

  IDC said advertisers are turning their backs on social networking sites because they have a lower “click-through rate” than traditional online ads. Only 57 percent of social network site users clicked on an advertisement and made a purchase last year, compared to 79 percent on the internet at large.

  Experts at Deloitte said Facebook is suffering from the double-whammy of collapsing advertising revenue and the soaring cost of electronic data storage. Deloitte estimates that the cost of storing photos and videos on sites like Facebook has increased by more than $100 million a year.

  “The book value of some social networks may be written down and some companies may fail altogether if funding dries up,” said Paul Lee, Deloitte director of research for technology and telecommunications. “Average revenue per user for some of the largest new media sites is measured in just cents per month.”

I gave thumbs down to every ad I saw on Facebook until it quit showing me ads. Meanwhile, I’d be glad to track my use of facebook and pay something for the value I get from it.

6 comments

  1. Erich’s avatar

    Facebook is not an advertising platform: are you more likely to pay close attention to ads when you are talking with your friends or when you are alone? Then we should not be surprised learning Facebook’s click-through rate is lower than man non-Social Networking sites.

    Facebook is a relationship based sales platform and a market research platform. It’s another opportunity to engage with your customers. It’s an opportunity to convince customers. In public. That’s where you have the opportunity to create crowd momentum and drive sales. Not advertising.

  2. Don Marti’s avatar

    I’m still not sure about this. It seems like search advertising is the online equivalent of a Yellow Pages ad or an end-cap display at a store, and Facebook advertising is the online equivalent of the person who tries to sell you Herbalife at a party. So trends that apply to Facebook, which is trying to push advertising onto people who are in social mode, might not apply to sites that are trying to advertise to people who are in shopping mode.

  3. Doc Searls’s avatar

    Great metaphors, Don.

    And Erich, you’ve got me thinking.

    The New York Times is an advertising platform. But that’s not what makes it valuable to its readers. There is something deep and important about the Times that transcends its business model. I’m sure the fact that readers also pay for the paper is part of that.

    Facebook… I dunno. It serves some important and useful purposes, obviously. But there is also what a reporter many years ago called “the principle of instrumentality.” That is, the medium’s other purpose as an instrument of advertisers. Or, in Facebook’s case, an instrument of companies wanting a “relationship based sales platform and a market research platform.”

    Speaking just for myself, I could not be less interested in being involved in that. YMMV, etc.

  4. David Glaze’s avatar

    To pick up on Don’s party metaphor, I think it’s useful to envision Facebook as just that…an online party. Advertisers who have had a measure of success with Facebook understand there is some value in just being at the party. They know that the second they try to “sell you Herbalife” everyone will walk away, leaving them to nibble at the bean dip and sip a warm beer in solitude, never to be invited again.

    The scary part for advertisers, of course, is attaching some kind of ROI to “”just being at the party”. Until our models for evaluating the impact of an entire marketing ecosystem…often made up of many small tactics and engagements…advance, we’ll be stuck with trying to measure individual tactics. Or, as has often been the case with Facebook, trying to force measurable tactics (ads) into a hostile environment.

  5. Tom’s avatar

    Good points.

    I’m trying to decide whether the advertising situation is a full-blown pyramid, or just overstretched supply. Either way, I think it’s pretty clear services like Facebook are going to need to implement a cover charge to meet their costs in the long run.

    People will pay, in general. But if I was an investor I’d be cashing out right now.

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