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This article was published on July 25, 2012

Revenue from social networks to top $16.9bn in 2012, advertising alone worth $8.8bn: Report

Revenue from social networks to top $16.9bn in 2012, advertising alone worth $8.8bn: Report
Jon Russell
Story by

Jon Russell

Jon Russell was Asia Editor for The Next Web from 2011 to 2014. Originally from the UK, he lives in Bangkok, Thailand. You can find him on T Jon Russell was Asia Editor for The Next Web from 2011 to 2014. Originally from the UK, he lives in Bangkok, Thailand. You can find him on Twitter, Angel List, LinkedIn.

Social networks have already revolutionised the way that we interact online, becoming the Internet itself for many, but the ‘Facebook Effect’ has gone beyond communication and is changing the way money is made on the Web, with $16.9 billion set to be generated from social sites this year, according to a report released by Gartner.

Facebook is no longer a new thing for many of us, and Gartner concedes that the relative saturation in many markets means new users sign-ups will continue at a “moderate rate.” However, the firm is witnessing a visible acceleration in monetisation around these sites, with advertising providing the primary source of income, as is to be expected.

The analyst house predicts that social media-based ad revenue will hit $8.8 billion this year. That aside, social gaming — which the firm notes doubled its revenues between 2010 and 2011 — is likely to fetch $6.2 billion, while subscription-based income is on target to tally $278 million, although the report is sceptical of the long-term growth potential of the latter.

Early stages of revenue generation

We are still very much in the early stages of advertising models, despite the relative maturity of Facebook’s ground-breaking system, which raked in $1.06 billion in Q1 2011, and that Gartner’s data clearly reflects that.

Twitter, for example, has this year extended its promoted tweets advertising, making the platform accessible to a range of businesses that were likely priced out of it due to the excessive minimum cost of adverts initially. It is also further branching out by taking the service international, and offering more options to focus on targeted audiences.

Now, with a more self-serving platform opening it up to new brands, the company has been tipped to grow its advertising business to $540 million by 2014.

The microblogging firm’s softly-softly approach largely mirrors the way other social networks are growing their incomes, which, in many cases, is being figured on a trial and error or explorative basis. Gartner’s Neha Gupta says:

“Although the number of social media users is large, and in some cases increasingly mature in their usage patterns, the market is still in its early stages from a revenue perspective.”

Straight-up advertising is prospering for a number of reasons. Not only does a Facebook-style system — in which the site has a lot of information about its users — allow brands to target very specific audience segments, but the high level of engagement provides click-through rates that exceed more traditional Web advertising models.

Gaming and virtual gifts

Gartner sees on-site commerce as another segment with potential for advertising revenues to kick on.

The virtual goods market (ie the concept of buying a digital item for a friend, or in-game features) is already hugely successful in Asia. Gartner predicts virtual goods will “remain the primary source of revenue” among gaming-focused sites.

Gaming is an interesting segment, and it is clear that the influence of mobile is driving the revenue opportunity here.

Two of the social games firms listed by Gartner — Japanese duo DeNA and GREE — operate on mobile devices only, and both are bona fide revenue generating machines. DeNA recorded annual sales in excess of $1.8 billion, while GREE is equally as prolific.

Virtual goods and in-game goods are a key part of their success, despite recent restrictions taking effect in their domestic market. Many titles pit users again each other, offering paid for features to gain advantage, or else collaborative titles allow the gifting of virtual items.

The social gaming space, pioneered by Zynga (which accounted for 12 percent of Facebook’s revenues in 2011), is one that is heating up. The report notes that existing console players are moving into the new social industry, which is now buoyed by an increasing army of casual, and serious, gamers.

Zynga, DeNA and GREE are all moving towards open mobile gaming platforms, thereby enhancing the choice and availability of games for users. In doing so, they are strengthening their ecosystem and appeal, which is likely to increase average usage and provide revenue opportunities for game developers as well as advertisers too.

More intelligent use of data

Despite the increase in users, usage and revenue, the Gartner report suggests that no new disruptive revenue models will emerge until at least 2016, as Gupta explains.

“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. The biggest impact of growth in social media is on the advertisers.”

Even just by clicking ‘Like’ on Facebook, users are increasingly providing an array of data that gives valuable insight into their tastes and preferences. Gupta believes that new opportunities exist for finding more efficient and qualitative users for this colossal amount of data, which can be used by brands and companies to better understand their audience and find more effective ways of appealing to them.

“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.”

 Image via Flickr / West.M

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