Report: The Big Money Is on Social Ads Going Native

Social media advertising revenues will double by 2016, and native ads — such as sponsored stories on Facebook and promoted tweets on Twitter — will be its fastest-growing segment, according to a forecast from BIA/Kelsey.

The channel will grow from $4.6 billion in 2012 to $9.2 billion in 2016, predicts the report. That accounts for a compound annual growth rate of 19.2 percent.

A large part of the inventory on social networks is comprised of display advertising. Facebook’s Marketplace Ads and YouTube’s multiple display units such as video and traditional banners are examples of this type of advertising. However, social networks are developing new ads, many that integrate with the operations of the site, and that is where new growth is occurring.

Going Native

Native ads are an emerging segment within the social media advertising channel. The segment is expected to grow from $1.5 billion in 2012 to $3.9 billion in 2016. BIA/Kelsey estimates a compound annual growth rate of 26 percent.

The forecast defines native social advertising as branded content that is integrated within a social network. In most cases, native ads appear in a user’s feeds or content stream. The most prevalent formats for this category are sponsored stories on Facebook and promoted tweets on Twitter.

One of the defining features of the format is that users can interact with the ads by sharing them and posting comments.

Content Combination

“I think one of the core components in native advertising is it’s advertorial content,” Jed Williams, program director of social local media at BIA/Kelsey told the E-Commerce Times. “It’s actually interacting with or integrating with the organic content on the page.”

New ad formats are essential for social media platforms, as are other forms of monetization. Native ads are an extension of the social media concept, which enables users to interact with the content.

“Social advertising is driving greater demand,” Williams said. “Because these units are richer they can drive more engagement, and push more ROI.”

As native ads mature, Williams expects the format to experience compelling experimentation.

For brands, native ads offer a way to reach consumers.

“I think it’s very effective for small to large businesses,” Billy Pidgeon, senior analyst at Inside Network, told the E-Commerce Times. “Tweeting or posting on specific products and services can offer benefits.”

One social networking site, Pinterest, allows users to create themed boards with images and links to outside content. Several brands have started campaigns on the site, asking users to create boards related to the product. The strategy is to get consumers to spend more time with the brand, but also have that user share the brand with friends and followers.

Brand Perks

Consumers who interact with the brand may gain access to a special offer, or be entered into a contest. It’s a new way for businesses, especially small businesses, to interact with consumers.

“Small businesses are not getting the same kind of coverage that they were before,” Pidgeon said.

Native ads have the unique quality in that they span both the desktop and mobile components of social networking sites.

“Mobile is a growth driver here. The most volatile in terms of growth is mobile social advertising,” said Williams. It will, however take a while for the platform to mature. Development is confined by several factors, including the amount of real estate on the screen and the amount of inventory available.

“We have it growing, but there’s still a limit on how big that growth can be,” Williams said.

Huge Mobile Growth

Growth on the mobile platform is happening at a compound annual growth rate of 8.5 percent. BIA/Kelsey forecasts that revenues will grow from $500 million in 2012 to $105 billion by 2016. The growth will be influenced largely by rapid social-mobile consumer usage growth, active experimentation by vendors and deep integration of native ad units on the platform.

While ad revenue is set to continue to grow, social networks shouldn’t rely solely on income from advertising as its business model, warns Williams.

“One of the tricky ideas for social networks is how do they continue to make money beyond advertising,” said Williams. “One idea is payments [for virtual goods and enhancements in games, for example], however, payment is still hovering around 14 or 15 percent of the business.”