Social networks urged to 'raise ad rates or die'

Datamonitor's Business Insights study predicts that charges for advertising on social networks will have risen steeply by 2015, as the leading players attempt to avoid a similar fate to Bebo.

The report predicts social networks will make only US$6.35 per user per year, forcing them to rethink how they can make a profit.

It also suggested that marketers should look beyond social networks' user numbers and focus on the proportion that regularly visit the sites. The report pointed out that, while the number of MySpace users is falling, it has the highest level of regular users (63 per cent), compared with Facebook's 50 per cent and Twitter's 20 per cent.

Richard Absalom, consumer technology analyst at Business Insights, said that ‘streams of ads' on social networks were turning users off and this was prompting advertisers to look for other ways to reach consumers. He suggested that
possible approaches included in-game advertising, offering virtual gifts and creating user groups and advertising around premium video content.

Absalom also predicted that, as brands got past the experimental stage of marketing on social networks, they would begin to demand a healthy return on investment.

AOL has announced that it plans either to sell or shut down its Bebo network, while MySpace has scaled back its global presence by closing several offices. Analysts warn that other social networks could go the same way unless they increase their charges to advertisers or develop subscription revenue streams.

However, marketers have expressed scepticism at any plans to raise the cost of advertising on social networks.

Ian Armstrong, UK manager for customer communications at Honda, argues that social networks would be treated like traditional channels by companies looking to buy ad space.

"To charge a premium, numbers have to be compelling and you would apply the same metrics you would with other media," he said.

According to Scott Gallacher, former online marketing director at BSkyB and a director at customer publisher The Aston Group, brands will pay more only if social networks give them suitable platforms to engage with consumers, rather than standard ad slots.

"To influence consumer behaviour, brands have to listen to customers before launching a product," he said.