The amount U.S. companies spend marketing themselves on social networking sites like Facebook is expected to grow from an estimated $4.5 billion last year to nearly $38 billion by 2015, according to a new report from Borrell Associates Inc.
More than 1.5 million local businesses participate in social networks, and they accounted for about half of all spending on social-networkmarketing last year, the report said.
"Given their unique ability to move messages among connected users, social networks have been irresistible to marketers looking for ways to deliver advertising and promotional messages," the report said. "The results to date have been breathtaking."
Borrell projects spending on social networking marketing will jump 68 percent this year alone, to $7.5 billion, with 11 cents of every online marketing dollar earmarked for such efforts. Five years from now, Borrell thinks social networking will capture one-third of all online marketing spending.
An increasing proportion of that spending will be on promotional campaigns rather than advertising, the consulting firm projects. While 88 percent of social networking marketing spending in 2009 went into advertising, that percentage is expected to drop about 50 percent in 2010 and 36 percent by 2015.
Profiling engines on Facebook identify user demographics and interests, allowing advertisers to target ads in specific ways, including age, gender, relationship status, education level, workplace, interests and connection to an advertisers’ Facebook page.
The report, "Social Networking Explosion: Ad Revenue Outlook," includes a case study of a marketing campaign used to promote a comic-book convention in South Florida using ads on both Facebook and local cable television.
The Facebook campaign involved buying 54 separate keywords including "pokemon," "batman" and "comic books," and creating an ad campaign for each using unique images tailored to the interests of each targeted group.
The Facebook campaign didn’t generate as many ticket sales as the local cable television ads, because they had a smaller audience. But the cost of marketing per attendee was lower — 54 cents, compared to $2 for the television ads, the report said.
"The time it takes to manage this kind of campaign is considerably larger than the time it takes to manage one ad that reaches a mass market," the report concluded.
"The value proposition lies in the overall savings achieved in reaching the same number of people. As online media, particularly auction-based media, rises in price, the value of the effort to produce targeted advertisements goes down."
Although the Facebook advertising platform is an effective way to reach people, the study concluded that promotional campaigns that create "organic" impressions may be more persuasive.
"Share this" and "Like" buttons from Facebook encourage people that are on a brand’s website to share the content of that site with their friends on their profile pages. When users share content generated by businesses or service providers, they expose friends to a brand with an an implicit endorsement, the study said.
Facebook has noticed that businesses run contests and sweepstakes through pages and ads, and has developed standardized guidelines. The most important change is that business are no longer allowed to administer contests through a page itself, and must now use third-providers like Wildfire and Second Street Media.
Companies can still publicize contests on Facebook and administer them on another website, but that doesn’t offer the seamless experience that users have come to expect on the Facebook platform, the study noted.