We all know the Facebook story or at least saw the movie. A site for college kids to publish their pictures became an Internet phenomenon. But while grandma may now be posting what she ate for breakfast, the real revolution Facebook has created is for advertisers. Brands are salivating at the prospect of reaching the 500 million users who collectively spend over 700 billion minutes a month on Facebook.

In 2011 and beyond, Facebook will become one of the most important marketing channels in the world. Already, Facebook is on track to generate more than $2 billion in ad revenues in 2010, far surpassing earlier estimates of around $1 billion, and will likely skyrocket past that figure in 2011, as more marketers shift budgets from TV, radio, and print to the social realm. Proctor & Gamble got a head start on this move by recently announcing it would transfer the majority of its daytime TV advertising budget to social platforms like Facebook and Twitter.

And, it’s not just Facebook that’s having an impact on marketing. In fact, all social media – from Twitter and blogs, to forums and YouTube – is having a profound impact on how consumers interact, find products, get deals, shop, and get information. For marketers, that means social is no longer just a channel, but an integral part of a strategic marketing plan. Social media now impacts all of a brand’s marketing campaigns, with free viral “sharing” beginning to surpass paid marketing channels like search engine marketing, display, and print advertising at driving large audiences to campaign pages and brand websites.

To be sure, brands are already spending on social media marketing-– but 2011 will likely see a huge surge in investment into social as Facebook, Twitter, and all things social become increasingly measurable and ROI-focused. The investment in online advertising iw predicted to set a new record in 2011, growing 14 percent to $51.9 billion, up from $45.6 billion in 2010, according to Borell Associates. Two of the fastest-growing segments of online advertising are the local sector and social media.

So what will the social media marketing landscape look like in 2011? Here are four predictions based on our work with hundreds of top brands to measure, track, analyze their social media marketing programs.

Social media will kill the TV star – Okay, “kill” may be a stretch but did you know that more people play Farmville than watch daytime TV? A recent study by Deutsche Bank found that 7.5 million people tune into Oprah every day, whereas 43 million people play a Zynga game each day. In contrast to advertising on TV, targeted social media campaigns offer brands the ability to deliver relevant messages with precision to specific, highly engaged audiences –0 and present them with compelling offers and instantly-redeemable coupons.
In contrast to the “lean back” experience offered in front of the TV, social media brings brands and consumers closer together than ever before. TV watchers may see a brand flash before them on the screen, but game players may see an offer from your brand within a game they are playing, and be offered free game credits for taking a survey, referring a friend, or making an immediate in-game purchase of one of your products.

The Groupon effect is here to stay — Consumers today have a “deal mentality”. With the rise of daily deal sites like Groupon, flash sales sites like Gilt, and myriad coupon sites, consumers don’t want to buy a product unless they feel they’ve gotten a great deal on it. What’s more, customers now expect recognition and rewards for spreading the word about deals, discounts, and exclusive opportunities. They don’t just want a good deal, they want an even better deal for promoting deals to others!
Most brands now use Twitter and Facebook to publicize deals, and an increasing number are experimenting with Groupon and other deal sites, but future sales belong to marketers who not only publicize their promotions, but reward sharing in real-time so buyers have a strong incentive to spread the word and extend the reach of every campaign.

Mobile is social According to Facebook, there are more than 200 million active users currently accessing Facebook through their mobile devices, and these mobile users are twice as active as non-mobile users. With the emergence of location-based services like Foursquare and Facebook Places, the integration of social and mobile is growing ever stronger.
Today, not only are we constantly connected via our mobile devices, but as our friends discover content, deals, and discounts, they share them with us – spreading brand campaigns directly from phone-to-phone. People are beginning to expect that relevant content, including advertising, will reach them via the friends or contacts they trust. Some of the fastest-growing segments of mobile marketing include mobile coupons that customers can use by presenting a barcode on their phones to scanned at checkout; iPhone apps that allow price comparison, product searches, and immediate transactions; and Foursquare-type services that allow businesses to reward frequent store visitors with discounts and promotions. The best mobile marketing promotions and content are those that can be shared.

Sharing is the new search — While Google will continue to prosper in 2011, the role of “sharing” in how people discover information, deals, and products is changing how we search and what we search for. News finds us. Fun, entertaining content finds us. Deals and discounts find us.
In fact, from our own research across Meteor Solutions’ customers, we found that influencers –- those who share your campaigns across their social graph –- can directly influence 40 to 60 percent of all visits to an advertising campaign page. More and more, people will get product information through the social graph –- instead of directly from a brand advertiser. Search will remain the most efficient way for people to find something specific, but sharing will become the most efficient way for relevant, useful, and entertaining content to find us.

Marketers need to create campaigns that go beyond interrupting consumers with advertising, and create content that’s highly useful and easily shareable –- such as contests, deals, promotions, inside information, and product reviews. The social graph is creating effective ways for marketers to reach audiences at scale.

Social media is no longer just a way for consumers to waste a few minutes looking at funny cat photos. Today, Facebook and other social channels are becoming the way people interact with the larger world around them –- and brand marketers are going to make sure they’re not too late to the party.

Ben Straley is the CEO of Meteor Solutions, a company offering website tracking and content sharing tools to advertisers and publishers. He’s also the lead instructor for the University of Washington Certificate Program for Advanced Interactive Marketing. He can be reached at ben@meteorsolutions.com or @meteorsolutions.

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With Google worth more than $200 billion based on nearly $29 billion in revenue last year, and Facebook worth $50 to $70 billion based on less then $2 billion in revenue last, it’s easy to call Facebook’s current valuation hype. Why then would so many investors be willing to purchase a stake in Facebook for so much? We take a look.

The Global Advertising Business

While it’s hard to find hard numbers on the total global advertising market, one report we found from 2009 pegged global ad spending at more than $440 billion. What does this have to do with Facebook and Google? Well, the primary revenue source for both businesses is advertising. One of the best ways to value a business is by analyzing the broad market that is involved in. While Facebook’s Credits business is growing rapidly thanks to the explosion in social games, it still accounts for a small portion of Facebook’s revenue (although it could definitely grow significantly).

While Facebook and Google will most likely never have the majority of all global advertising, this $440 billion figure is a great place to start.

Internet Advertising Growth

The next step is to take a look at internet advertising as a percentage of the total global advertising market. According to the IAB, the total Internet advertising market for the first half of 2010 was approximately $12 billion. If we were to project for the total year, we’d guess that the total Internet advertising market will be around $28 billion as revenue tends to pick up toward the fourth quarter.

That means Internet advertising still only accounts for less than 7 percent of the total global advertising market. Overall, we can make a reasonable prediction that this market will at a minimum double in size as consumers’ attention turns to Internet-powered devices. That would be extremely conservative. If we expect that Internet advertising is going to balloon, as most people in the industry believe, we could make a much more aggressive prediction that Internet advertising could potentially grow to 25 percent of the total advertising market, especially if consumer attention continues to shift in that direction.

That means there’s an additional $80 billion in annual advertising up for grabs on the high end, and an additional $28 billion on the low end.

The Lion’s Share

So who’s playing for that $28 billion? Right now Facebook and Google are the primary competitors in the space, with many other companies, like Twitter, looking to capture large portions of that market. If we were to look into the future and predict that at some point in the next five years, Facebook and Google combined will have 60 percent of that market (not unreasonable considering Google’s revenue is already greater than the entire internet advertising market), and it’s split 50/50, Facebook will be generating $7 billion a year in revenue.

However, if the market is going to grow to the size that we believe, Facebook could bring in $24 billion a year in advertising revenue, a figure which Google basically already has right now.

Marketing Budgets

While the IAB has its own measurement of online advertising, there is a portion of company budgets which falls into “marketing” and both Google and Facebook are also going after those budgets as well. This means there’s easily billions of dollars to be spent on alternative advertising solutions. Take Groupon and LivingSocial, for example. These companies, combined, could easily generate more than $5 billion in revenue this year alone.

As such, we’ll see both Google and Facebook try to get in on the action as the deals market explodes. Facebook has already launched its own deals product, based on Places, and Google has already attempted to acquire Groupon for more than $5 billion. If Facebook can get a piece of these budgets, you could easily see the company adding billions in additional revenue through such sources if successful. For the time being it’s not clear whether or not Facebook Deals will eventually become a new revenue channel on its own; however, we can just about guarantee Facebook will try to get a piece of this explosive market.

With this in mind, I’d say it’s somewhat reasonable to expect at least a few billion in annual revenue through new marketing products for small businesses within the next 5 years. This would bring Facebook up to $27 or $28 billion a year in revenue.

Sizing Things Up

With all this (theoretical) revenue, Facebook actually would have to be worth $200 billion, right? Well, if the market stays the same as it is today (which it of course won’t), Facebook would have a market cap of a little more than $200 billion if valued at a revenue multiple similar to Google’s (similar businesses, similar valuations). That’s awesome! So from the perspective that investors can purchase shares at a $50 billion to $70 billion valuation, and Facebook will have been a great buy!

Can you predict the global market?

Well, if all of the projections which I just laid out are accurate, it actually isn’t that unreasonable. However, there are a lot of things that need to take place in order for these projections to come true. One of those things is that the economy needs to continue to grow for the next five years or more. While things are on the up and up, there’s no guarantee that things will grow quickly. It could take 10 years for the Internet advertising market to grow to the size we projected (instead of five). If that happens, your annual return on a Facebook investment will suddenly be slashed. As such, global market trends will impact your investment.

Is Facebook just hype?

Another perspective is trying to predict where Facebook will be in 10 years. Given that the company has only been around for seven years or so, it’s hard to predict where a company like this will be in a decade. Ultimately, it’s very unlikely that Facebook will just disappear, however it’s definitely something that should be considered. If Facebook fails to perform as expected, and misses projections at any point during the next five to 10 years, Facebook’s valuation would be damaged.

More importantly, if Facebook doesn’t continue to expand or at least maintain its grip on the attention economy (where consumers are spending their time), Facebook’s value to advertisers would drop dramatically and suddenly a large portion of the aggressive market share predicted earlier, will be wiped out.

All things considered

With all of these things taken into consideration, the only remaining component of making the investment is determining what other opportunities you will have to do with that money over the next five years or more. If you think the Internet advertising market is going to definitely grow and that Facebook will simply dominate that market, expecting the company to be worth $100 billion to $200 billion is not completely illogical.

However, if you are conservative, think the market will take five years to double in size and that Facebook will have a smaller fraction of it than expected, other investments would look much more attractive. If you’re a gambler who’s extremely bullish on the Internet advertising business, a Facebook investment really isn’t a horrible bet. Best of all Facebook Credits, or an alternative revenue stream that we don’t know of yet, could prove explosive as the company marches toward 1 billion users.

This means Facebook jaw-dropping valuation of $50 billion (and upwards of $70 billion based on other private transactions), is not that ridiculous as long as Facebook continues to play its cards right, successfully capturing a growing fraction of internet advertising revenue. Keep in mind: All the cards must be played right.

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Monday, January 24, 2011

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