Social media revenue shows no signs of slowing down and is increasingly driven by advertising, a Gartner report finds.
Although Facebooks initial public offering may have disappointed some, social media is on track to generate close to $17 billion in revenue worldwide this year, according to IT research firm Gartner. The report found revenue is up 43.1 percent to $16.9 billion, compared with 2011 revenue of $11.8 billion. Advertising continues to be the largest contributor to overall social media revenue, projected to total $8.8 billion in 2012.
Revenue from social media subscriptions is expected to total $278 million this year, while social gaming revenue, which more than doubled between 2010 and 2011, is expected to reach $6.2 billion in 2012. Gartner analysts predicted users would continue to join social networking sites at a moderate pace, with new features, applications and experiences holding the interest of old members and drawing the interest of new participants. As the competition between sites like Facebook, LinkedIn, Twitter and new players increases, new forms of Web-based and mobile social media will rise, Gartner predicted.
"Usage of online social media has matured, and more than one billion people worldwide will use social networks this year," Neha Gupta, senior research analyst at Gartner, said in prepared remarks. "Although the number of social media users is large, and in some cases increasingly mature in their usage patterns, the market is still in its early stages from a revenue perspective."
As many of the professional sites, including LinkedIn and Xing, that charge for premium services observed a decline in the subscriptions revenue ratio, social sites are moving toward lower subscription fees and shifting focus to other sources of revenue, such as advertisement-based sales, although the report notes the growth in users paying for professional networking accounts will continue. Marketers are allocating a higher percentage of their advertising budgets to social networking sites, which is driven by the large pool of engaged users who spend considerable time on social media sites, thereby increasing the potential click-through rates (CTRs).
"Social media sites are becoming more innovative in their ad products to attract marketers," Gupta continued. "Social networking sites should deploy data analytic technologies that interrogate social networks to give marketers a more accurate picture of trends in accordance with consumers' needs and preferences."
In terms of new revenue channels, Gartner predicted payments on social media sites will increase, providing increased revenue opportunities to social media sites to serve as a payment platform for transactions of digital content, such as paying for applications, as part of social gaming or to make a person-to-person (P2P) payment to another user of the network site. The sale of virtual goods will remain the primary source of revenue, the report predicted.
"New revenue opportunities will exist in social media, but no new services will be able to bring significant fresh revenue to social media by 2016," Gupta concluded. "The biggest impact of growth in social media is on the advertisers. In the short and medium terms, social media sites should deploy data analytic techniques that interrogate social networks to give marketers a more accurate picture of trends about consumers' needs and preferences on a customized basis. In the meantime, however, they should also continue to exploit other channels of revenue like mobile advertising and social commerce."
Nathan Eddy is Associate Editor, Midmarket, at eWEEK.com. Before joining eWEEK.com, Nate was a writer with ChannelWeb and he served as an editor at FierceMarkets. He is a graduate of the Medill School of Journalism at Northwestern University.