Sunday, December 14, 2008

Cuts cuts cuts

How much money are social networks making from advertising? Not nearly as much as estimated earlier this year. Back in May, eMarketer trimmed their estimate for 2008 social network advertising spending in the US to $1.4 billion. Today, they’ve lowered it once again, to $1.2 billion.

The cuts are more dramatic when you look to 2009, where eMarketer now projects ad revenue of $1.3 billion, down from a previous estimate of $1.8 billion and representing tepid growth year-over-year. Of that revenue, the firm estimates that 65% will go to MySpace and Facebook, leaving just $435 million in ads for the hundreds of other social networks and widget providers to fight over next year.

While hardly surprising given estimate cuts for the broader online advertising industry, the news is a sobering reminder of the need to find business models that extend beyond advertising. Perhaps that’s part of the reason we’re seeing so many new mobile applications and ways to charge social networking users money, like virtual gifts that can be redeemed in the real world.