Correction Looms as Social Nets See Traffic and Ad Prices Boom

The Social Software Weblog reports that the top 10 social networking sites saw traffic grow 47% over the last year, according to Nielsen. MySpace had the biggest growth at 367%. See the chart below for more. (MySpace is an Edelman client).

Naturally as traffic balloons, so do ad prices. Inside Facebook quotes a New Yorker report that the going rate for a banner ad on social-networking sites was pennies per thousand (CPM). Today, MySpace's CPMs have risen to about ten cents, while Facebook commands a whopping $4.

There's definitely a power shift underway. Sites that are "made out of people" - what I call galaxies in this social media universe - are starting to command big traffic. However on some sites the CPMs are getting way out of control.

I don't expect the traffic to these sites to subside. But I would not be surprised to see pockets of this ad market get too far ahead of itself and then correct. This is healthy. We saw it with the 1.0 run-up in the late 1990s. Get ready for a pullback, especially if inflation in the US economy remains high. It will eat into the ad market, which historically it always does. It's cyclical. Who's most at risk? Yup, the one with the furthest to fall - Facebook. I predicted this late last year.

Technorati Tags: Facebook, MySpace, Inflation

Comments

[Eric Frenchman]

Steve,

I was wondering why you believe Facebook is the one to fall in price versus others and if there is something more than just "higher" CPMs. The $4 CPM is generally low and I believe that they garner a higher rate than other social networks because of their targeted audience. I think you are right that a correction is coming, but perhaps not as great for Facebook.

Eric
www.ericfrenchman.com

[Eric Frenchman]

BTW - big fan of your site!!

Eric

[Rita Desai]

Why does Friendster get left off? And also Livejournal?

[Josh Blinick]

Steve,

I am actually fairly suprised to here you say that. I just heard you speak at Mesh in Toronto, and one of the points that was made (And is often made) is how relatively little is spent by major companies on online-advertising. It appears as if the total spent online has not reflected the growth in online use, as companies continue to disproportionally spend on TV/print media.

Would this not indicate that in the coming years as more and more companies begin to recognize the opportunity of cheaper, more focused, more measurable advertising, that CPM's should go up, especially for sites that have niche markets?

Josh