While Internet users are spending more and more of their time with social networks, advertising spend continues to be directed towards more traditional web uses. What are the reasons for this paradox? Jean-Nicolas Reyt analyses the situation*.
Between June 2009 and June 2010, the time spent in social networks by U.S. Internet users increased from 16 percent to 23 percent of online time. Social games (12 percent) rank above e-mail (8 percent) in the list of most time-consuming activities on the web. Portals such as Yahoo slip in the list from 5.5 percent of Internet users’ time in 2009 to 4.4 percent in 2010. Watching video rises from 3.5 percent to 3.9 percent and represents a total of 3.15 hours per month.
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Therefore we are witnessing a change in the habits of Internet users. Whereas the share of time spent online is decreasing for traditional uses (e-mail, portals, etc.), that of the new social media (social networks, social games, videos, etc.) is showing a rapid increase. These new media are opening up new opportunities for businesses to communicate with consumers.
The social networks attract only 6.7 percent of online advertising
According to a recent study, in 2010 the advertising spend on the social networks budgets grew to US$ 1.68 billion in the U.S.A., representing an increase of 20 percent compared to 2009 where the figure was US$ 1.4 billion. In the rest of the world, the advertising spend on social networks totals US$ 1.62 billion in 2010 and is destined to overtake that of the U.S.A. in 2011, when it is forecast to reach US$ 2.17 billion.
Although these figures seem high, it is useful to put them in perspective by comparing them with the total advertising spend on the Internet. In 2010, advertising on the social networks represented only 6.7 percent of all online advertising.
… and are experiencing problems convincing the advertisers
Take the example of the French advertising market. Despite the success of the social networks such as Facebook and Twitter, French advertisers continue to give preference to search marketing for reaching Internet users. In the first six months of the year, the market for search marketing represented EUR 430 million, i.e. an increase of 8 percent compared to 2009.
In order to win over advertisers, social networks such as Facebook must offer prices that are more attractive than the rest of the Internet: When an ad costs on average US$ 2.43 dollars for a thousand views on the Internet, Facebook offers it for US$ 0.56… The average CPM (cost per thousand views) in France, lower still, is US$ 0.12 or 20 times less than the average price of advertising on the Internet! In France, 47 percent of businesses are sceptical with regard to the social networks. The successive generations of social networks (the slowdown of Myspace, arrival of Twitter, etc.) do not exactly encourage advertisers to take a risk on the social networks. Then again, the businesses that communicate on the social networks continue too often to address the Internet users instead of communicating with them and seem still to see the social networks as a way to broadcast an advertising message free of charge and not as a new form of dialogue with their market, which is why they still direct only a small share of their spend towards these campaigns.
Jean-Nicolas Reyt is a researcher at the Luxembourg University and the University of Paris Dauphine, specialist in corporate digital mobility (www.reyt.net)