Social Media Revenues To Reach $16.9B In 2012; Ads Remain Leading Driver At $8.8B, Predicts Gartner

For those of you who get frustrated with the idea that in many social networks, you are not just a user but also a product, prepare to grit your teeth a bit more: a new forecast out from Gartner notes that advertising will remain the main way that social media services make money. The analysts predict that this year social media revenue will generate $16.9 billion in revenues, with more than half of that, $8.8 billion, to come from advertising. The estimates are coming out on the same day that social gaming giant Zynga is reporting earnings, and days before Facebook posts its results.

That $16.9 billion figure represents a rise of 43 percent over last year, when social media services like Facebook, Spotify, Twitter and more generated $11.8 billion in revenues. While sales will continue to grow at fast clip, however, Gartner notes that the user base of social media services, now numbering at over one billion users, will only grow at a “moderate pace.”

Neha Gupta, senior research analyst at Gartner, says that this is because when it comes to consumer adoption, social media has moved into a more mature phase with slower subscriber growth. But that doesn’t account for how social media sites will develop monetizing services, and how those users will engage with them. “Although the number of social media users is large, and in some cases increasingly mature in their usage patterns, the market is still in its early stages from a revenue perspective,” she said. In that sense, it’s no surprise to hear that companies like Facebook are ramping up their engineering efforts, as well as making their platform more accessible users that might not be on PCs, but are, for example, using mobile devices.

The analysts have spelled out how different segments in the social media business model will perform, and it looks like along with advertising, gaming is also a strong contender for generating revenue.

Social games form the likes of Zynga, Wooga, Gree and others will bring in $6.2 billion in revenue this year. On the other hand, subscriptions — say to music services from Spotify, or a premium video product on Facebook — will be far smaller, making only $278 million for social media companies.

That shows that while services based around subscriptions are being created and promoted by sites, users are still looking for free (or ad-funded) content where these are concerned. Perhaps the reason why games have been more successful in engaging customers to pay is because they have been working this into their revenue models from the start.

And, partly by virtue of ramped-up engineering efforts, we are likely to keep seeing more developments in areas like advertising, not just in terms of ads but analytics and “big data” advances. A report out last week from TBG noted that Facebook was seeing a lot of engagement in its newer ad formats — Sponsored Stories and mobile ads — with the social network overall making 53% more on its ads than a year ago. That partly demonstrates that users are responding to the ads, but also shows that advertisers are getting more interested in going to where consumers are living these days.

Social media sites will be drinking “gamification” Kool-aid, too, it seems. No surprise, if games are proving to be money-spinners, that the model will be attempted elsewhere. Gartner says that this will be led by the sale of virtual goods, one example being virtual gifting outside of a gaming environment. Payments in general are still a small part of revenue for companies like Facebook, however, although it is increasingly incorporating them into the site in areas like applications and, Gartner notes, to transfer money to others. When there is further integration with connected TVs, this could also bring up opportunities for paying for content via your social media accounts.

The large revenue to be found in social gaming is also attracting a number of new players to the scene, Gartner notes. One example where we might see significantly more activity: Sony, which recently purchased cloud-gaming company Gaikai.

On the non-advertising/gaming front, there are precious few other revenue openings. “Professional networking accounts” such as those offered by LinkedIn and Xing, have seen some activity. But perhaps because of the prevalence of free, consumer-led services like Facebook, even these professional-focused sites are looking for alternatives to paid accounts, with a bigger emphasis on advertising and other professional services themselves. LinkedIn’s new redesign, with a homepage aimed at offering a more sticky experience to users (free and premium) is also a testament to that.

“New revenue opportunities will exist in social media, but no new services will be able to bring significant fresh revenue to social media by 2016,” said Ms. Gupta. “The biggest impact of growth in social media is on the advertisers. In the short and medium terms, social media sites should deploy data analytic techniques that interrogate social networks to give marketers a more accurate picture of trends about consumers’ needs and preferences on a customized basis. In the meantime, however, they should also continue to exploit other channels of revenue like mobile advertising and social commerce.”