Social networks threaten advertising growth

The Institute of Practitioners in Advertising, which will publish the “Social Media Futures” report compiled by Future Foundation next week, shows ad agencies fgrowing just 1.2 per cent a year by 2016 unless they can get to grips with the impact created by sites such as Facebook, YouTube and Twitter.

Advertisers have had some impact with e.g. the Cadbury “Gorilla” spot being viewed over 10m times on YouTube as well as being aired on television.

The Dove “Campaign for real beauty”, which advertised Unilever’s cosmetics range, was also boosted by a YouTube video showing a high-speed transformation of a model’s natural face to the made-up and touched-up final version which appeared on a billboard.

But not enough agencies are adjusting to the online world, the IPA warned. In its worst-case scenario, the resulting decline in paid-for advertising space could see £16m ($23m) of revenues lost by the industry by 2016, if agencies fail to create new products and services to cater to the social media world.

However, the report says that two-thirds of that decline could be made up by creating new forms of web content that contains branding messages, and by analysing the data expressed on the web.

Clients’ investment in new content and rapid data analysis will increase by around 5 per cent, according to the IPA’s survey. Other sources of revenue derived for social networking include consultancy and e-commerce.

“The current downturn will accelerate these trends in agencies as everyone is looking to innovate and stand out from the crowd,” said Moray MacLennan, IPA president and chief executive of M&C Saatchi Worldwide, an agency.

“I don’t think [social media] is a replacement for paid-for media, it is just going to be a challenger for [consumers’] time and attention.”

David Yates of Realitus, Social Media consultants and designers commented,

“Social networks themselves are still figuring out how to make money from advertising on their sites. Pricing for generic banner advertising on social networking is relatively low compared to other sites, because their users are logging in for communication rather than commerce. But the strategy, the generation of content and the placement of that content is of more direct use to the marketer. The monetisation of sites is less of a concern. It may create room for a commercial platform if the content is attractive enough. But as it stands social media is here to stay, people are visiting and referencing the sites and advertising agencies are going to have to work out a place for themselves in this mix.

David Yates continued.

“New media take-up has prompted both networks and advertisers to look for more innovative ways to connect with consumers. People do not really believe advertising any more. It has little more credibility than propaganda. So, as people go about purchasing decisions differently, they now seek information themselves rather than just receiving it, and advertising agencies are increasingly talking to the walls they usually stick their ads on” he said.

Based on an article in the FT By Tim Bradshaw, Digital Media Correspondent: January 15 2009