Even in a 2011 Boom, Social Networks Will Be Small Ad Players

Even though ad revenue is expected to surge for social networking sites, online communities will only represent a small portion of overall advertising spending, according to a report by Deloitte published at paidContent.

Deloitte’s forecasts are actually optimistic compared with yesterday’s eMarketing report. Deloitte believes ad spending on social networks will climb 40 percent in 2011 to $5 billion, whereas eMarketing pegs the 2011 figure at $3.08 billion, up 55 percent from 2010. (It’s perhaps indicative of the nebulous nature of the social-network ad space that the firms’ trailing 2010 numbers don’t align.)

In any case, Deloitte tempers its view of the boom with a caveat that social networks are a long way off from surpassing other advertisers in terms of revenue per user:

Yet revenues on a per-subscriber basis are unlikely to match search or traditional media in the next year or two. Also, advertising rates, measured on a CPM (cost per thousand impressions) basis, are likely to remain low compared to other forms of online advertising as well as traditional media.

Plus, it’s unclear how much more headway social media companies can make in the short term by growing their user bases:

When social networks attain the billion unique user milestone, nearly half of one global user base – computer-based Internet users – may be signed up by year-end 2011. This could put a ceiling on future growth if global Internet adoption continues to expand at the pace that consensus analysts expect: it might be increasingly difficult for social networks to sustain their impressive subscriber growth trajectories.  

But thanks to the low costs inherent to the online world, social networks still face an attractive year ahead in terms of profit margins, says Deloitte.

With that in mind, is Facebook set to saturate the global population of online users just in time for a potential IPO? Are smaller social networks like New York’s Foursquare poised for better growth? We’ll find out!

mtaylor [at] observer.com | @mbrookstaylor 

Even in a 2011 Boom, Social Networks Will Be Small Ad Players