July 25, 2012, 2:40 PM

Social media revenue will hit $16.9 billion this year

That’s a 43.2% jump from $11.8 billion last year, Gartner says.

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Social media revenue will reach $16.9 billion this year, up 43.2% from $11.8 billion a year ago, according to a report released today by research and advisory firm Gartner Inc. The projection comes a day before Facebook Inc. releases its second quarter earnings.

Advertising, projected to reach $8.8 billion this year, will drive the largest share of that revenue as marketers allocate a higher percentage of their ad budgets to social networking sites, says the report, “Forecast: Social Media Revenue, Worldwide, 2011-2016.” Social gaming, expected to reach $6.2 billion, makes up the bulk of the additional revenue. Gartner did not detail where the rest of the revenue will come from, and did not immediately respond to a request for comment.

Social networks appeal to advertisers because they offer a large pool of engaged users, says Gartner. For instance, as of March roughly 58% of Facebook’s 901 million users logged on to the social network every day. Those users spend considerable time on those sites. Social networking accounts for one of six minutes spent online, a comScore Inc. report found earlier this year. And those consumers share a tremendous amount of information about themselves and their interests on those sites, which enables marketers to finely target ads to distinct customer segments, says Gartner.

Social networks such as Facebook and Twitter are also diversifying their ad products, offering formats that enable marketers to target mobile consumers, for instance. "Social media sites are becoming more innovative in their ad products to attract marketers," says Neha Gupta, a Gartner senior research analyst.

Another report, this one from Facebook advertising firm TBG Digital, finds mobile advertising could represent a large revenue channel for the social network. Facebook launched mobile ads during the second quarter.

The only mobile ad format Facebook offers are Sponsored Stories, which are the posts and other actions by brand and consumers on the social network that are promoted by a brand. However, those ads have proven effective. Sponsored Stories that appeared in the news feeds of mobile users had a click-through rate of 1.14%, nearly double the 0.59% rate for ads in the news feed of desktop users, says TBG in the report. The effectiveness of those mobile ads appears to be highly lucrative for Facebook, which received $9.86 for every thousand mobile ads served (CPM), roughly 13 times the rate it received for desktop ads, says TBG. Advertisers pay those rates because the ads work, says the report. The cost per fan acquisition on mobile ads was 29% less than it was for desktop users.

Across its various ad formats, the CPM over the last four quarters (that is, the year ended June 30) increased 58% compared with the same period a year earlier. Click-through rates rose 11%, which compares to a 6% last quarter, says TBG.

The average cost per click, or CPC, jumped 9% in the first quarter across TBG’s top five territories—the United States, the United Kingdom, Canada, France and Germany. And in both the United States and Canada, the average CPC passed $1, which is the first time it has exceeded $1 in any of those territories. The average U.S. CPC was $1.04, up 13% from Q1; the average Canadian CPC was $1.02, up 12% from Q1.

For retailers the average click-through rate for was 0.039% in the quarter and the average CPC was $1.02. TBG did not offer comparable rates for Q1.

The increase in both CPM and click-through rates suggests that marketers are finding Facebook’s ad formats increasingly effective, TBG says. In part, that’s thanks to more advertisers using its Sponsored Stories ad format, which has a higher CPM, says the report. The click-through rate for Sponsored Stories was 53% higher than standard ads, the report says.

TBG’s report is based on 71 billion impressions served on behalf of its clients.

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