Social Network Ad Spending is Starting to Level Off as Industry Matures
We know that global ad spending is going to slow as it matures, but where will the next boom in digital spending occur as it levels off with social?
Advertisers in North America spend the most to be social and paid spending on social networks will ramp up in the years to come, reaching $35.98 billion worldwide by 2017, according to new figures on the future of social network ad spending by eMarketer. That's the narrative, at least.
The top three regional spenders—North America, Asia-Pacific and Western Europe—are individually projected to spend $4 billion and above in 2015. While the bottom three—Latin America, Central and Eastern Europe and the Middle East and Africa—will only reach social spends in the millions (the lowest of the group, the Middle East and Africa, is only forecasted to spend $160 million in 2015).
“The U.S. and China will be leading the individual countries in social network ad spending for the foreseeable future, collectively commanding more than half the worldwide market throughout our forecast period,” the report says. The forecast heavily emphasized what appears to be steady growth in North America, with little attention on actual growth in the Middle East and Africa.
According to the eMarketer charts, yes, all of the represented regions of the world are seeing growth in social media. But, the amount that these regions are spending each year per social network user is actually starting to slow down. Why? Because social media is starting to reach a mature level and marketers are finding the right level of sustainable spending. This is understandable, especially in the United States, where social media was originally developed, and because global ad spending is going to slow as it continues to mature. This forecasted deceleration is true for all six of the regions, except for the Middle East and Africa, where it will actually grow.
Below is a breakdown of the ad spending per network user in the six observed regions. In North America (and the other regions, except for the Middle East), the known year-over-year change from 2013-2014 was positive—North America saw a $13.11 jump between 2013 and 2014. The slope of the trend line for the forecast period (2015-2017) yields a lower coefficient though (10.48; Graph 2). A significant portion of the five-year growth is coming from the years 2013 and 2014, and actually slowing down a little bit in those regions through 2017. Even though social network ad spending is growing and regions are spending more, the growth rate is slowing down to a more sustainable level.
The Middle East and Africa is the only region with a positive percentage of change, but since they are such a small percent of the total change, it doesn’t hold nearly as much weight as say, North America, which makes up over 40 percent of the whole change.
In Graph 3, you can see that the increase in the red curve becomes shallower as global spending growth slows, until the red dips below the trend line. On the contrary, in Graph 4 with Middle Eastern spending, the increase in the red curve becomes steeper as Middle Eastern spending accelerates and global spending slows.
We know that global ad spending is going to slow as it matures, but where will the next boom in digital spending occur as it levels off with social? Take a look at LinkedIn, for example, it has multiple revenue streams and has monetized its users through premium memberships, career services and more. While eMarketer does state that “Facebook is dominating the paid social advertising landscape globally,” does this mean they will need to monetize their users even more in the years to come? When the social advertising dollars start to slowly evaporate, these platforms may need to start to better monetize their products—and not just the traffic they see.