If 2008 marked the year that social media burst into the mainstream, this is the year that the concept must prove its value to skeptical marketers against the backdrop of a worldwide economic downturn.
Last year, the social networking space enjoyed stellar growth with worldwide revenues growing to US$2 billion, up 46% from the previous year. Growth this year is likely to be less impressive - eMarketer recently slashed its growth forecast for the social networking market from 32% to 17% and predicts that the market will be worth $2.3 billion by the end of 2009.
Of course, some might argue that double-digit growth in the midst of an economic downturn sounds good, but the reality is that the new forecast from eMarketer is nearly half of its earlier predictions. Growth in social networking spend around the world is slowing down not only as a result of poor economic conditions, but also because of a lack of proven advertising models.
Social media sites have a massive audience base to offer advertisers, but most of them are still struggling to show advertisers how they can tap the audience for a proper return on investment (ROI). Many advertisers have rushed into social media without truly understanding the space and have been disappointed with the results.
One of the major problems lies in the fact that the ROI benchmarks and models in the social media are still immature. Advertisers don't understand the economic models because social media owners don't yet understand them themselves.
By contrast, the ROI models for other online channels such as paid search are both proven and well understood. Advertisers are reluctant to commit much of their limited budgets to media they consider to still be 'experimental' when times are tough.
So, one of the immediate challenges for social media networks is to create ways that they can demonstrate and measure the value of advertising on their properties to their advertisers. This is complex and difficult when interactivity and engagement are the measures of success in the social networking space - it's far harder to measure 'engagement' than it is to measure clickthroughs, page views and customer conversions.
The second challenge that social networking sites face is creating new revenue streams to complement traditional display advertising, which hasn't proven to be a massive success in the social space. The biggest opportunities lie in using the data they have for behavioural and demographic targeting, but they need to tread carefully because of privacy concerns.
Perhaps the way to tackle to challenge is to allow users to decide what information they will make available to advertisers and to manage their preferences and profiles themselves. The first social networking site to get the formula right stands to make a fortune.
Harnessing social media's potential
So, what does this mean for you as a South African marketer? Social media sites have really taken off across the world, and South Africa is no exception. MySpace, YouTube, Twitter, Flickr and FaceBook all attract thousands of unique South African users generating millions of page impressions each month.
It's not a channel that any forward-thinking marketer can afford to ignore completely. The challenge for marketers lies in understanding, firstly what social media is, and secondly, in how to harness its potential as a marketing and advertising medium.
Social media is all about community, networking, interaction and engagement.
It's a space where people meet others; build on existing relationships, and share information, feelings, ideas and content. As such, you can't simply advertise to them as though you're placing a banner on a news site.
Instead, it's all about involving consumers in a dialogue with your brand.
Setting up communities, creating interactive widgets, and other interactive elements are essential if you want to make the most of social networking.
South African brands are starting to understand this - a number of local companies have set up groups on FaceBook or feeds on Twitter, with relative success. These tactics are relatively low-cost and allow one to drive quality interactions with one's audience.
Even though the economic downturn is taking its toll on the social networking space, it's becoming increasingly clear that there's an enormous amount of value in the concept for marketers. Best of all, one can start experimenting with the channel at a low cost. It's unclear where social media is headed in the long term, but the sooner markets come to grips with the it, the better they will be placed to drive real value from the concept once the business models have matured.
About the author
Richard Mullins opened Acceleration's Johannesburg office in 2000. Richard has played an instrumental role in the growth of Acceleration in South Africa, working with clients to identify their online marketing needs and establish effective online marketing strategies that deliver superior results. This is achieved through the implementation of technology services such as Advertiser and Publisher Ad Operations, Email, Paid Search and Site Analytics. Richard's career includes tenures at Ogilvy and Mather and Saatchi & Saatchi where he worked with clients such as Unilever, Sun International, Nedbank Guinness, Toyota and M-Net. Richard completed an honours degree in Communications.