News Corp and Microsoft are just some of the companies to have stumped up serious cash for stakes in social networking businesses such as MySpace and Facebook, but the investments may yet prove to be duds. Internet media analyst eMarketer has scaled back its estimates of how much money advertisers in the US will spend placing ads on social networking sites this year from $US1.6 billion ($1.7 billion) to $US1.4 billion. The downgrade came a week after News Corp's online division, which houses MySpace, missed its 2008 revenue target by 10 per cent and cements the perception that social networking services are struggling to find the right advertising model.
"Social network sites are still trying to figure out what sort of advertising works," said eMarketer senior analyst Debra Aho Williamson.
"Tapping into consumers' conversations and spreading brand awareness virally has proved more challenging than companies originally thought."
Members of social networking sites such as MySpace, Facebook and Bebo are growing increasingly resistant to advertising on their pages, which they typically see as a community forum rather than a marketing space.
But the sites' operators remain determined to find a way to make money from the more than 230 million people who log onto social networking pages every month.
This year eMarketer expects MySpace to generate $755 million in revenue in the US, down from a previous forecast of $850 million.
Facebook is tipped to bring in $265 million, down from $305 million at last estimate.
On a positive note, eMarketer predicted that ad spending on social networking sites would still increase 55 per cent in 2008, but that is far slower than the 163 per cent growth recorded last year.
eMarketer said that advertising on social networking pages would be worth $2.6 billion in 2012.
© Fairfax Business Media
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