The Value Ads of Social Media

HipMojo talks about Social Media making less money from advertising than the optimists hope and points to two contradictory posts.

First, eMarketer has a report out on the value of UGC, predicting:

- In the US, eMarketer projects that the number of user-generated content creators will rise from 77 million in 2007 to 108 million in 2012.
- The number of consumers of user-generated content will increase from 94 million in 2007 to 130 million in 2012.
- US user-generated content advertising revenue will reach $824 million in 2012, up from $162 million in 2007.

I just don't believe the Ad estimates, frankly - according to these estimates we are looking at a c 38% increase in consumers, yet a 408% increase in Ad revenues, giving a c 4 - fold increase in Ad revenues per customer from $1.7 to $6.6.

Especially given posts such as this one from Charles Hudson, talking about his buying behaviour on Twitter and Facebook (basically buying stuff elsewhere after friends' recommendations on social media):

Two reasons why this will be a hard road in the short term:

Neither Twitter nor Facebook had any visibility into the resulting transaction as it all happened out of band from their perspective - the consumption all happened offline and outside of the networks they manage and monitor. I’m not sure how most of these models are going to work if the social networks only have visibility into online transactions and many of these loops close offline.

Even if these networks could demonstrate that they were driving referral behavior based on social interactions, why would advertisers want to pay for the resulting transactions?

Its not strictly true they had no visibility, as a serious scraper could have picked up the "conversation" about a product, but it would have seen intention rather than actual purchase, a far less valuable piece of information. But the point made is that this is nowhere near seeing the actual transaction, never mind taking a share in facilitating it.

As HipMojo notes:

Sure, that’s why you are seeing ad networks generate revenue: treading to no man’s land. But considering that US online ads were $25B in 2007, focusing and getting so jazzed up on $162M is foolish

This is all very interesting, because we've been quite sceptical about Social Nets being sky-high Value- Ad businesses for some time (see a recent post here), but to the derision of many.

( One also wonders where Facebook's $15bn will come from, given the sum value of the US UGC market (about 40-50% of the global total I suspect) of $900m odd. )