Facebook set for display ad lead

Facebook’s large user base will make it the world’s largest online display advertising company by revenue this year, overtaking the comparable businesses of Google and Yahoo, according to analysis published on Tuesday.

Enders Analysis, based in London, in a report on Tuesday, forecasts that Facebook will lift its advertising revenues from $1.8bn to $3.5bn in 2011, a rise of 95 per cent. At the same time, Google’s display business – which includes YouTube, the video site, and DoubleClick, its banner network – is expected to rise from $2bn last year to $2.6bn this year, with Facebook extending its lead in 2012.

Display advertising includes images and video shown on a standard web page, although it excludes search, from which Google derives significantly larger revenues.

Although Facebook’s advertising revenues remain a fraction of Google’s search business, the social network’s 500m users and the volume of ads it shows those users has enabled it to lift revenues rapidly.

“Facebook is changing the dynamics, bringing new advertisers into the market as Google did in 2002 with search,” said Ian Maude, internet analyst at Enders.

Google has said that its display business – which includes YouTube, the world’s largest video site, as well as graphical and banner advertisements on third-party websites – is one of its top growth priorities.

Google said in September that display revenues for its third quarter indicated sales for the unit would be about $2.5bn for the year. Analysts say the business has been growing rapidly since then, with some forecasting display revenues of more than $3bn for 2011.

In spite of Facebook’s attempts to liken the reach and influence of its site to television, its yield per ad impression remains low, making its advertising relatively cheap. Click-through rates are broadly similar to standard online ad formats, such as banners, which Facebook abandoned on its site in favour of text-heavy ads, often mentioning which of a user’s friends also like the advertised product or service.

“Despite Facebook’s growth, revenue per user remains low compared to other internet businesses, with Google generating eight times the revenue per user,” Mr Maude said.

Although many of Facebook’s clients are “relatively low quality”, such as group-buying websites, rather than big brands, Mr Maude said its advertisers were shifting money from other media properties.

Its growth therefore stems from the volume of ads shown and the time spent on its site. In the US, Facebook accounted for three time as many ad impressions as Yahoo, its nearest competitor, according to Comscore, the traffic monitoring group.

There are early, anecdotal signs that Facebook is starting to eat into Google’s search business too, Mr Maude adds. “It’s early but it is happening.”

Facebook is also starting to challenge Google as a referrer of traffic to other websites, although it is still some way behind the search engine. Figures from Comscore show that traffic to the top online retail site from Google is falling in countries such as the US, UK and France, while Facebook is becoming more significant, although it is yet to overtake Google.

A report published on Monday by the Pew Research Centre, a US think-tank, found that Google remained by some way the largest source of web visits to large US news websites, delivering 30 per cent of their traffic on average. Of the 25 sites compared, Facebook was the biggest driver of users to the Huffington Post, at about 8 per cent.

Twitter, Facebook’s smaller social-networking rival, accounted for 1 per cent or less of traffic to all but one of the top 25 US news sites.

“Social media … and Facebook in particular, are emerging as a powerful news referring source,” Pew said in its report. “At five of the top sites, Facebook is the second or third most important driver of traffic. Twitter, on the other hand, barely registers as a referring source.”

Facebook did not comment. Google said: “Our focus is on providing clients with real results from their display advertising ... and our clients’ response has been overwhelming.”

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