Is the sky the limit for the social media ad model? Time will tell. Meanwhile, industry watchers like the analysts at Deloitte have come up with some interesting questions that marketers may want to consider as they think about how much effort and budget to allocate to this channel. The bottom line is that social media must mature before its average revenue per user matches the effectiveness of other marketing channels.
Deloitte analysts believe about 1 billion people, globally, will participate in social networks by the end of this year. And marketers “may deliver over 2 trillion advertisements.” This marketing activity is projected to generate about $5 billion in industry revenue which translates to “per member annual advertising revenue of about $4.”
The operators of social networks are looking at other revenue sources to grow more quickly than ad revenues. These lines of business include payment systems and e‑commerce. The reliance on other lines of business might be a good thing. The way Deloitte analysts see it, ad revenue “on a per-subscriber basis are unlikely to match search or traditional media in the next year or two.”
At the present time, average revenue per user (ARPU) has not yet caught up with search and traditional media formats. There is also some concern that consumers will reach a limit on the amount of time they have available to spend on social networks. This limit might have a negative impact on CPMs which is already low for social network providers, a situation which strains their business model. In addition, Deloitte analysts point out that social networks have not yet delivered “superior advertising results”.
If network operators and markets can figure out how to analyze and monetize the personalized information provided by consumers and do this in a profitable way, then the marketing value of social networks as a valid advertising channel will vastly improve. In the meantime, most marketers believe they must at least pay lip service to the new consumer who values peer reviews. At the very least, key players like marketers and ad agencies will expand their use of social media but try to control costs until a profitable direction for the business model emerges.[Source: Social Media: How Big Can It Get. Deloitte.com. 2011. Web. 3 Feb. 2011]