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Startups looking to become the next big thing on the social web may find it more difficult to raise capital going forward, but there's good news for the major players in the space today: the amount of money advertisers spend on social ads is set to grow considerably in the next several years.
By just how much? According to a new report by BIA/Kelsey, spending on social ads will double in four years, growing from $4.6bn this year to $9.2bn in 2016.
As BIA/Kelsey sees it, the bulk of the spending in 2016 ($5.4bn) will be directed at display ads on social networks, but the fastest growth will come from 'native' social ads which more tightly integrate ads into the user experience. All told, the firm predicts approximately a third ($3.85bn) of social ad spend will go to these native ads in four years.
Good news for Facebook, or is it?
If BIA/Kelsey's estimates are accurate, numerous companies stand to benefit. One however, Facebook, stands to benefit the most.
Display advertising, of course, is currently the linchpin of Facebook's advertising business, but many believe that the key to monetization for the world's largest social network is native ad offerings like Promoted Posts.
Some analysts are increasingly bullish on Facebook's prospects. The reason? They see evidence that Facebook is figuring out how to make advertising work on a social network, particularly with native ads on mobile, and if that's the case, BIA/Kelsey's projections for the growth of social ads, particularly those that are native, would appear to be good news for Facebook investors.
But projections are projections, and Facebook and other social players pushing native ad offerings still face challenges. Recently, Facebook has come under fire from advertisers who believe that Facebook is engaging in EdgeRank shenanigans in an effort to force them to pay for Promoted Posts. Billionaire internet entrepreneur Mark Cuban went so far as to claim that he's de-emphasizing Facebook as a result, both for his NBA team's Facebook Page and the Facebook Pages of the dozens of startups he has invested in and advises. If enough advertisers feel the same way, and act on their concerns, Facebook's ability to scale Promoted Posts revenue could be in jeopardy.
Bigger, but better?
At the end of the day, few would argue that the social advertising pie isn't likely to expand, and significantly.
But even putting aside Facebook-specific issues, questions about efficacy of native social ad offerings remain largely unanswered. Calculating ROI from social campaigns is still a challenge for many advertisers, and native ad offerings in and of themselves won't necessarily help them figure it out. It also remains to be seen how users will react as more and more of the social networking experience is infiltrated by advertising, which could influence behavior in ways not beneficial to advertisers.
If the social advertising pie is to expand significantly, a lot of things must still happen and the Facebooks of the world will need to build significantly on their current efforts.