{{ searchResult.published_at | date:'d MMMM yyyy' }}

Loading ...
Loading ...

Enter a search term such as “mobile analytics” or browse our content using the filters above.

No_results

That’s not only a poor Scrabble score but we also couldn’t find any results matching “”.
Check your spelling or try broadening your search.

Logo_distressed

Sorry about this, there is a problem with our search at the moment.
Please try again later.

In my recent post about the credibility of research firms, I noted that predictions and projections often differ greatly from firm to firm.

I stated...

"...significant differences are bound to exist, highlighting the fact that even educated speculation is still speculation. Compare the huge variation in forecasts as to what the mobile ad market will be worth in a few years."

Given that much of my criticism of Forrester Research has been based on what I believe is irrational exuberance when it comes to social media, I find it amusing that projections related to social network advertising have become yet the latest case study in just how subjective the art of predicting the future is.

Forrester is on the record as believing that advertising on social networks will thrive in a recession.

One of the company’s recent reports went so far as to state:

"Social applications in particular, such as communities and social networking sites, are cost-effective and have a measurable impact on prospects’ decisions in the consideration stage, which will be important to companies under recessionary pressures."

Forrester’s “researchhas convinced some, but its bullish sentiments aren’t being echoed by research firm eMarketer.

Last week it lowered its ad spending estimate for social networks, noting:

"In spite of media hype around social networking, worldwide advertising spending on social networks has not met expectations. eMarketer has revised its worldwide social network ad spending estimates, now projecting that advertisers will spend £1 billion on social networks worldwide in 2008, rising to only £2.2 billion in 2011. The previous figure for 2011 was £2.4 billion."

In its online advertising report, “US Interactive Marketing Forecast, 2007 To 2012,” issued on October 10, 2007, Forrester predicted that the number would be much greater.

As detailed in BizReport article on Forrester’s projections:

Social marketing efforts will continue to garner a nice chunk of advertising budgets and is expected to reach $10 billion by 2012 thanks to widgets, gaming and podcast applications.

In contrast to Forrester’s babble about social media and “the conversation,” however, eMarketer analyst Debra Aho Williamson provides a hefty dose of reality:

"Social network sites are still trying to figure out what sort of advertising works. Tapping into consumers’ conversations and spreading brand awareness virally has proven more challenging than companies originally thought. [Emphasis mine]"

As observed by PaidContent:

"The go-go growth is behind us. By the time social net ad spend hits 2011, it will be showing its slowest annual increases. The biggest boom came in 2007, when spend grew 135 percent. In 2008, social net ad spend is forecast to grow to £1.03 billion ($2.02 billion) - but that’s only a 68 percent year-on-year growth. Up to 2011, the growth is forecast to be a shrinking 35 percent, 22 percent and 20 percent respectively."

Obviously, one could choose to believe that Forrester is right and eMarketer is wrong, but I, of course, would argue that a logical analysis of the market data provides more support for eMarketer than it does for Forrester.

After all, the problems with social network monetization are well-known and the less-than-stellar financials for some of the most popular social networks, including Facebook and Bebo, have become public knowledge.

Of course, one should not forget that eMarketer’s projections are still just projections. That said, I think eMarketer is more realistic in its projections than Forrester and my experience has been that most research firms overestimate the size of future marketers and the speed with which they will grow.

But even if eMarketer is underestimating the market by half, it’s clear that social network advertising is a relatively small market. The biggest question raised by this is just how long the notion that popular social networks are worth exorbitant amounts can last.

With AOL making what I believe to be an ill-advised $850m bet on social network advertising and rumors that Microsoft may be looking to purchase Facebook for a 10 or 11-figure amount, it appears that there’s a huge disconnect between the size of the market and the valuations of largest companies in it.

After all, it’s hard to justify Facebook’s $15bn valuation if eMarketer is correct and the market is worth less than $5bn annually by 2011. It’s even hard to justify that type of valuation if Forrester’s $10bn 2012 projection turns out to be more accurate.

It’s also worth noting that eMarketer’s report includes a lower forecast for Facebook’s 2008 revenues. If Facebook’s rosy outlook is already being "revised downward" at this stage of the game, I shudder to think of the future it would face as a publicly-traded company despite the hype being promulgated by the venture capital community, which clearly wouldn't mind seeing a more vibrant market for IPOs.

Specifics notwithstanding, in my opinion, eMarketer’s revised estimates highlight on a macro level the fact that even though some (such as Forrester) cling to the hype, more and more are starting to recognize that they’ve been taken for a ride on the hypetrain.

The disparity between projections, some of which are being lowered considerably, and the disparity between the size of the market and the valuations of the companies in it, can only mean one thing - at some point there will be a “rebalancing” and this correction isn’t going to be fun if you’re on the wrong side of the equation.

Drama 2.0

Published 27 May, 2008 by Drama 2.0

237 more posts from this author

Comments (3)

Avatar-blank-50x50

Gordon Borrell

Bravo on this post. I run a small research firm with what I believe is the absolute best gurus in the country when it comes to local advertising, and we know firsthand how extremely difficult it is to churn out meaningful, accurate-as-possible numbers. What's more, we know how EXTREMELY EASY it is to get quoted these days -- and therein lies the problem. There is limitless inventory when it comes to "news hole" these days, and a pressing need for reporters and bloggers to fill those holes every single day.

Regarding the numbers we're seeing, I'll have to point out that gut feelings about "extremely optimistic" (or pessimistic) have been as wrong as often as they've been right. I can recall a report by Forrester in 1998 entitled, "Say Goodbye to Classifieds," predicting the demise of print classified advertising. The newspaper industry scoffed, and print classifieds kept going up and up in 1998, 1999, and 2000. Then the bottom dropped out.

You should know that eMarketer, whom you seem to favor issues a consensus estimate, which means its numbers are more or less an average of all the good and bad numbers out there. If eMarketer were The Weather Channel, it would take all the temperature readings across the U.S., average them out, and issuing one temperature for the entire United States.

over 8 years ago

Ashley Friedlein

Ashley Friedlein, Founder, Econsultancy & President, Centaur Marketing at Econsultancy, Centaur MarketingStaff

I've talked to a lot of brands who have advertised on social networks recently and the common story seems to be:
- Very poor click through
- Poor quality of customer (conversion rates, lifetime value etc.)
- But good enough ROI because they're paying such low CPMs

Doesn't exactly fill me with confidence that those networks appear just to be trading on massive volumes but little notion of quality or value. Doesn't bode well for the long term (or mid term actually).

Ashley Friedlein
CEO
E-consultancy.com

about 8 years ago

Avatar-blank-50x50

Geoff Ramsey

I need to respond to Mr. Borrell when he says that eMarketer merely takes an average of all the numbers out there. If it were only so simple! Rest assured, we do not take an average or any other mathematical formula, but rather our estimates and projections are based on a process of finding the best fit with all the available data, including looking at actual company revenues, traffic levels, consumer surveys, the economy, etc.

As proof that we don't take averages, eMarketer is frequently the first market research firm to size a new market. For example, we had the first projections for the social network ad spending market, the online video market, the behavioral targeting market, and many others.

Geoff Ramsey
CEO
eMarketer

about 8 years ago

Comment
No-profile-pic
Save or Cancel
Daily_pulse_signup_wide

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Daily Pulse newsletter. Each weekday, you ll receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.