Making up as much as 20 percent of the ad revenue

Jul 14, 2009 10:27 GMT  ·  By
Local advertisers make up as much as 20 percent of the ad revenue for social networks
   Local advertisers make up as much as 20 percent of the ad revenue for social networks

With online advertising hit hard by the weak economy it would seem natural that the market would change and players would shift their importance. This was the finding of a Borrell Associates study looking at online marketing spending on social networks. The study showed that local advertisers played a much bigger role than previously though, accounting for as much as 20 percent of the social networks' ad revenue.

While the researchers expected to find that local advertising had little importance for the large social networks, they found that these local advertisers spent as much as $641 million from the total $3.3 billion social networks are set to make in 2009 from advertising.

“In the scheme of things, it’s still a drop in the bucket. The total is less than 3% of all locally spent online advertising. If we estimated it for individual local markets (we usually don’t do that until an advertising segment reaches $1 billion), it would equate to a few hundred thousand dollars or less in most markets,” Gordon Borrell wrote on the research firm's blog.

The study also found that 57 percent of the local advertising budget for social networks went to the biggest two players in the US market, Facebook and MySpace. The two social networking giants are in fact the only ones making more than $100 million from local advertising. The report also showed ad platforms from Google or Yahoo were mostly used to deliver the commercials, though the researchers believe that an intermediary was used and that the local advertisers weren't buying the ad space themselves.

Thought the percentage of local advertisers is still small, the numbers are expected to grow if Facebook is any indication, as the social network generates 74 percent of its ad revenue from local advertisers. This report follows a previous eMarketer one predicting a decline in revenue for social networks in 2009.