Social Network Advertising Nearing An Inflection Point

Two of the most important trends in online advertising are the pervasiveness of social networks and the growing use of “owned platforms”–sites or apps that advertisers own that allow them to interact directly with customers and potential customers.

These trends threaten to disrupt traditional content publishers who sell ad space, because they allow advertisers to go direct.

Thus far, spending on social network ads has been small, because the ads tend to perform poorly.  Social networks have now become so pervasive, however, that they are impossible to ignore.

At the same time, many advertisers are building many “owned platforms” directly onto social networks, with some impressive results.  The development of these “owned platforms” is likely to accelerate, especially as advertisers seek more effective ways to market on social networks. (See some examples of owned platforms here >).

The following slide from a presentation by Adknowledge President Brett Brewer at the Social Media 2009 conference held this week in Sidney, Australia captures what we see as an inflection point for social media and “owned platform” advertising:

1) brands are struggling how to best use social networks, which are becoming more pervasive and

2) as traditional forms of advertising prove to be ineffective, advertisers will turn to “owned platforms,” a growing segment in online advertising.

The important takeaways from the slide are:

1) Social networking, though still mostly viewed with scepticism by marketers will be so intertwined with the average person’s life (90%-plus penetration into internet users by next year) that brands will realise they have to figure out a way to advertise on the platforms effectively or miss reaching consumers where they are most engaged.

2) Traditional advertising inventory (banners, video, text ads) are cheap, but that’s because they are mostly ineffective on social networks.  So, as “owned platforms,” which we recently highlighted, continue to produce results (including after the official campaign ends) more and more advertisers will turn to them.

A year ago most marketers/agencies were starting to talk about social networks as a growing potential advertising medium, and this is now starting to play out into actual ad spend.  The following Nielsen chart demonstrates how most of the top advertisers doubled their ad spend on social networks the past year:

We believe most of this increase was spent on traditional ad inventory (banners, video, text).  But as advertisers continue to see the results of platforms like Nike Plus or Facebook’s “engagement sampling ads” (read more here), they will ask agencies and media companies for more campaigns like these.  In turn, social networks like Facebook will pursue more of these since the CPMs are higher.

Digital Business Insider is a premium subscription service from TBI Research. Digital Business Insider digs into the economic, strategic, and financial impact of the news and trends impacting the media industry, providing daily analysis online and via email. Digital Business Insider members receive all publications, as well as online access to our archives. Members are also invited to submit questions and requests for additional research.

To sign up for a free beta trial, submit your name and email address here. The service is currently in beta and will launch formally later this year.

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.