The increased popularity of social networking has had a drastic impact on the Internet advertising market. Originally, webmasters would develop a page and host it through a provider such as GoDaddy, Yahoo or Inmotion. This method, though successful, was considered both tedious and costly. Advertisers usually did not possess the knowledge to develop these websites, and paying for the development and maintenance of these pages only decreased their bottom line.

Furthermore, advertisers promoting a specific niche found it difficult to appeal to their target market. These costs and inconveniences caused Web promoters to look for a more lucrative solution.

In 2002, MySpace was developed to provide Internet users with the opportunity to network with each other. MySpace was executed by its owner Tom Anderson, and today it has grown to become the ninth most visited web site according to the Alexa rankings.

The features of MySpace gave Web promoters just what they were looking for. Users were able to post blogs, share interests, and communicate with peers who had similar profiles. These features made it easier for advertisers to appeal to a target market. For instance, a MySpace user who described a certain brand of clothes in his or her profile would provide a target keyword for a potential advertiser.

This new advertising phenomenon sparked interest in what became known as behavioral marketing. Since MySpace users did not have to pay a fee to use the service, the program took advantage of the advertisers who were looking to promote their product or service at a more economical cost. It should be noted that the revenue that MySpace generates comes solely from advertising. Internet marketers are able to post their ads on MySpace for as little as $25. These marketers have complete control over how their ads are placed. MySpace has recently launched advertise.myspace.com, which provides instructions for marketers on how to create ads and then target them to a specific audience.

The effectiveness of business promotion through MySpace can be gauged from the fact that most businesses have a presence on MySpace and promote their business and services through their MySpace profiles and through MySpace advertising platform.

It wasn’t long before other social networking programs sprouted up across the net. In late 2003, Harvard student Mark Zuckerberg created what became known as Facebook. Originally, Facebook was only offered to Zuckerberg’s peers. When his idea gained increasing popularity, his social networking service was offered to college students all across America. Similar to MySpace, Facebook generates revenue from advertising. Specifically, Facebook pages contain several banner ads that are geared for a specific user. Today, recruiters are even using Facebook to promote job openings with in their company.

Facebook allows anyone to have groups and fan-pages. This is of particular interest to companies wanting to promote their products and services without being obtrusive in their promotion. Companies can create their own fan-pages and groups and promote it to their customers, who in turn can invite their Facebook friends to join and hence creating a cascading effect while generating lot of publicity for the companies.

Apart from the publicity, companies can also update their news, media and other information in the groups and fan-pages. This allows for companies to utilize Facebook to do virtually everything they would do with shared hosting.

Facebook has an affiliation with Microsoft, which serves as the provider for the banner advertising features. Not surprisingly, Facebook is said to be able to collect as much data from its users as both Microsoft and Google. Currently, Facebook is ranked #5 on Alexa, giving it a slight edge on MySpace. When signing up for a Facebook account, users have the option of describing their interests, hobbies, goals, political ideologies, and background. The keywords that users enter into these categories allow marketers to target a specific audience. With the assistance of Microsoft’s banner advertising software, Facebook has become an industry leader in Web marketing.

With over 175,000,000 active Facebook users, it comes as no surprise that Internet marketers have recognized the advertising benefits of social networking programs compared to regular hosting. Advertisers can target an audience based on age, gender, geographic location, and interests. Advertisers also have the choice between two methods: pay per click and pay per impression. The banner ads could either be a link, message, or photo.

As seen, it is only logical that advertisers would shift their promotion techniques from original Web hosting to advertising through social networking. To put it into perspective, one must consider the costs associated with each method. First consider Web hosting. An advertiser must first design a template, and unless he or she already has the knowledge to do so, an independent designer may be necessary. Depending on the features of the template, a designer may charge anywhere from $50 to $500. After a template is finally generated, a domain name must be purchased. Given the saturation of domains in today’s market, it is difficult to find one that is keyword optimized for a specific market. While domains are usually relatively inexpensive for the first year in the subscription, the cost increases depending on how long an advertiser wishes to hold the domain. Finally, hosting is an additional monthly expense needed to maintain a website. Hosting typically costs two-three figures per month, and when considered over the whole year, it is quite expensive for some people.

When reconsidering the costs of advertising on MySpace and Facebook, it only makes sense that advertisers would take advantage of these services. In addition, advertisers have better access to statistics pertaining to page impressions, clicks, and user demographics. Advertisers are also in complete control of how much money they want to spend on marketing. For example, if a marketer wishes to spend $25 on a MySpace ad space, he or she does not have to pay any additional advertising fees until the $25 expires. Taking into account the monthly costs associated with hosting makes the social networking advertising features seem both logical and economical.

Additional social networking programs and services have been created as a response to the success of both MySpace and Facebook. For instance, Twitter and LinkedIn are yet other examples of social networking programs that have become popular today. While the American version of Twitter is primarily financed by venture capitalists, the Japanese version generates most of its revenue through advertising.

LinkedIn is a social networking site that has taken a more professional approach and focuses on business social networking. Employees from various companies can utilize the services to find out about job opportunities, market trends, and basic economic conditions. The 35,000,000 users on LinkedIn are said to have an average household income of roughly $109,000. Based on the advertisers preferences, LinkedIn offers either Advertising Sales or Direct Ads.

The most evident benefits of social networking are clearly lower costs and convenience of reaching a target audience. Now that these benefits have been put into perspective, only one question remains: is social networking advertising effective?

Studies have been conducted to test whether or not marketers are getting a good bang for their buck through social networking programs. An independent researcher known as Razorfish recently performed a survey to see if social networking users are paying attention to the ads that are presented before them. Of the 1006 social networking users who were surveyed, roughly 76% of them said that they do not view that ads as annoying and have considered clicking on them.

The value of social networking advertising can clearly be seen by the number of online retailers who are now taking advantage of the services. Razorfish estimates that roughly 32% of online retailers based in America have a presence on Facebook, while 27% do on MySpace. These figures are only expected to increase in the years to come. Researchers estimate that approximately two billion dollars were spent on social networking advertising in 2008, and by 2011 that figure will be close to doubling.

Why should advertisers continue to pursue social network advertising? Without a doubt, social network advertising is a growing industry that has showed no signs of regression. To begin with, MySpace clearly continues to appeal to a large market. It is estimated that 1 in every 4 Americans has a MySpace account, and in the United Kingdom having an accounting is as common as having a dog. MySpace is also offered in 20 international territories, including the United States, United Kingdom, Japan, Australia, France, and Germany. In 2008, it was determined that roughly 300,000 new members signed up for MySpace each day.

Facebook has also shown steady growth over the passed few years. Since January 1, 2007, 250,000 users have registered for Facebook each day. Facebook is also known to be the #1 photo sharing program on the Web. Users aged 25 and older are said to be the primary demographic group of the program. For the most part, active user membership has doubled every six months. While several companies have made offers for the rights to Facebook, Mark Zuckerberg has refused to sell the program since he believes in preserving its integrity.

It would come as no surprise if some of the smaller Web hosting companies lose significant business in the upcoming years. With the services of MySpace, Facebook, Twitter, and LinkedIn providing cheaper, more convenient advertising alternatives, it only makes sense that advertisers utilize these services instead. At the same time, the costs of advertising through these social networking sites will most likely increase in the future. One should also keep in mind that it is possible that these social networking sites shut down. MySpace has been charged with several lawsuits relating to the access that users have to other users’ personal information. Sexual predators are known to be prevalent on MySpace, and this has caused increased skepticism from parents and organizations.

In summary, after weighing the costs and benefits associated with social network advertising, it comes as no surprise that it is slowly becoming the predominant method for marketers. The relatively inexpensive cost and access to target markets make it an extremely appealing technique for Internet marketers. Recent studies have also indicated that social network advertising is known to be effective. While there is no telling what the future holds for these social network websites, advertisers will undoubtedly reap the benefits that these networking services continue to offer.

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