SOCIAL MEDIA ADVERTISINGSeven Trends for 2014

NOVEMBER 2013

Debra Aho Williamson

Contributors: Catherine Boyle, Rimma Kats, Tracy Tang

Read this on eMarketer for iPad

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 2

CONTENTS2 Executive Summary

3 A Year of Social Acceptance

8 The Video Opportunity

9 Social = Mobile

10 Native Expansion

12 Social Ads Get More Programmatic

13 Moving Beyond the Walled Garden

14 Location Makes a Comeback

16 New Venues, New Ad Opportunities

17 eMarketer Interviews

18 Related eMarketer Reports

18 Related Links

EXECUTIVE SUMMARY

Call 2014 the year of “social acceptance.” More

marketers are committing budget to paid social

media advertising. And social media companies are

providing advertisers better targeting than ever, and

more ways to see the return on investment (ROI).

Facebook’s efforts in 2013 to simplify and prove the effectiveness of its ad products paved the way for future growth in spending. And as a mobile platform, Facebook has delivered scale and efficiency and will continue to pull mobile dollars in 2014.

Twitter, which went public this month, will continue its push for brand dollars by partnering with TV networks. Its planned acquisition of mobile ad technology company MoPub will help improve Twitter’s self-serve ad platform.

Here are seven trends to watch in 2014:

The video opportunity: New video ad products and partnerships with TV networks will provide branding opportunities and may help social media platforms gain access to coveted TV ad budgets.

Social = mobile: Facebook has become a powerhouse in mobile, while Twitter gets two-thirds of its ad revenues from the medium. For many marketers, the easiest way into mobile advertising will be via social media.

Native expansion: With the success of feed-based ads in 2013, social companies will increase the number of ads users see—and the chances of backlash will rise.

Social ads get more programmatic: More social media ads will be bought programmatically as technology improves to support real-time content initiatives.

Moving beyond the walled garden: Via MoPub, Twitter will start selling ads outside of its own service. Facebook has also restarted its own tests of a mobile ad network.

Location makes a comeback: After a few years on the back burner, geotargeted social media advertising will come back into the spotlight.

New venues, new ad opportunities: Instagram and Pinterest are starting to sell ads, providing fresh opportunities to reach consumers.

In 2013, social media advertising took several strides forward, and in 2014, more big gains will be made.

billions, % change and % of digital ad spendingUS Social Network Ad Revenues, 2011-2015

2011

$2.45

27.0%

7.6%2012

$3.1428.5%

8.5%2013

$4.32

37.4%

10.2%

2014

$5.50

27.2%

11.6%

2015

$6.70

21.9%

12.8%

Social network ad revenues% change % of digital ad spending

Note: includes paid advertising appearing within social network sites, socialnetwork games and social network applications; excludes spending by market-ers that goes toward developing or maintaining a social network presenceSource: eMarketer, Aug 2013

162038 www.eMarketer.com

KEY QUESTIONS ■ What will make 2014 a year of “social acceptance”?

■ What opportunities lie ahead in social video, mobile

and native ads?

■ How will real-time marketing and programmatic

buying intersect in 2014?

■ Why will the “Lo” piece of “SoLoMo” be more

important in 2014?

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 3

A YEAR OF SOCIAL ACCEPTANCE

Social media advertising took huge strides forward

in 2013, and there are multiple signs that the

momentum will continue next year.

The percentage of marketers buying paid social media advertising is rising: Investment bank RBC Capital Markets and Advertising Age found in a September 2013 study that 74% of marketers were buying ads on Facebook, vs. 62% in January 2013 and 55% in July 2012.

“Facebook is an important component of virtually every large brand’s online advertising campaigns at this point in time,” Pivotal Research Group wrote in an October 2013 report.

This year, Facebook surpassed the 1 million advertiser threshold, and all of the Advertising Age 100 Leading National Advertisers buy ads on Facebook, said Carolyn Everson, the social network’s vice president of global marketing solutions.

Twitter ad products are also seeing an uptick in usage. According to Chief Marketer’s 2013 report on marketers’ use of social media, 32% of US marketers used Promoted Tweets in 2013, up from 26% in 2012.

After expressing skepticism, marketers are opening their wallets wider for social advertising: In the months surrounding Facebook’s May 2012 IPO, there was significant debate over the value of social media advertising. General Motors famously pulled its ad budget from Facebook in May 2012 and did not return until spring 2013. Marketers that spent heavily in 2012 to gain “likes” and followers started to question the value of those fans, and that change in attitude was fully evident in surveys conducted in early 2013.

In a spring 2013 study, Advertiser Perceptions found that 47% of US advertisers planned to increase their social ad spending in the next 12 months. In a similar survey conducted in spring 2012, 57% had said their budgets would increase.

% of respondents

Change in Digital Ad Spending According to USAdvertisers, by Channel, Spring 2013

Social media47% 46% 7%

Video sites (Hulu, YouTube)40% 51% 9%

Video ad networks33% 53% 14%

Ad networks27% 59% 14%

Publishers (content)26% 51% 23%

Portals16% 60% 24%

Increase Maintain Decrease

Note: over the next 12 months; includes client-side marketers andagenciesSource: Advertiser Perceptions, "Advertiser Optimism Index Wave 19,Spring 2013," Sep 24, 2013164431 www.eMarketer.com

Now, as 2013 draws to a close, agency media-buying executives say the number of clients setting aside budgets for paid social media advertising is increasing. “It’s being deliberately planned-for now. There are definitely earmarks for social,” said Scott Symonds, managing director of AKQA Media, a division of digital advertising agency AKQA.

One key development that changed clients’ minds was Facebook’s decision to de-emphasize the importance of gaining “likes.” Advertisers “didn’t see the payout,” Symonds explained. In 2013, Facebook began touting its ability to deliver harder metrics, and that won advertisers over.

According to RBC Capital Markets and Advertising Age’s fall 2013 study, 56% of marketers expected to increase their Facebook ad budgets in the next year.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 4

Nearly nine out of 10 marketers will use social media for marketing in 2014: eMarketer estimates that next year, 88% of US marketers will use social media for marketing purposes, up from 87% in 2013. Though not all of these companies will buy paid advertising, they represent a base from which the social media companies can grow their ad business.

% of total

US Companies Using Social Media for MarketingPurposes, 2012-2015

2012

85%

2013

87%

2014

88%

2015

89%

Note: companies with 100+ employees; includes use of any of theproprietary public-facing social media tools for marketing purposes,including blogs, microblogging, photo- and video-sharing, podcasting,ratings and reviews, social games, social networks, virtual worlds, widgetsand applications, wikis, etc.Source: eMarketer, Nov 2013164975 www.eMarketer.com

Marketers have a more mature attitude toward social media: After several years of experimentation, marketers are feeling more positive about the role of social media in their business. This is a change from a few years ago, when marketers tended to express doubt or indecision about the importance of social media marketing. According to a Q3 2013 survey by Altimeter Group, just 22% of companies did not have a dedicated social media team.

“We’re learning more, we are more sure of ourselves, and we know what’s worth investing in on the platforms that have already had paid media,” said Jennifer Kasper, group vice president of digital/new media and multicultural marketing at Macy’s.

Marketers are also feeling greater comfort with social media because the social properties are sending the message that they can deliver what advertisers want.

“We are not just a social media solution,” said Everson. Marketers “realize that we are able to deliver incredible targeted reach at scale, which is a very different and larger conversation than we’ve had in the past.”

Greater acceptance of social media advertising’s place among other digital ad options: In years past, social media was considered separate from other marketing, and social advertising was not well integrated. However, nearly two-thirds of respondents to a July 2013 study by Adobe and Econsultancy said the same person was responsible for buying (or overseeing the buying of) display ads and social media ads. Moreover, social has reached parity with display; Adobe found that 68% of respondents used social advertising, and 69% used display.

Agency and marketer executives express optimism: Executives interviewed by eMarketer confirmed that 2013 was an important year in the development of social media advertising.

“Social media advertising is at a tipping point this year,” said Symonds. “It’s not a fun ‘test’ part of the budget. It’s big enough and persistent enough, and there is enough sense of efficacy that it’s worth investing.”

“The advertising platforms—particularly Facebook—have evolved,” noted Chris Bowler, vice president of social media at Razorfish. “They’re more than just another channel to do performance-driven advertising. Because the ads are integrated much more into the experience, social advertising is almost mission-critical right now.”

“It is becoming one of the core foundations of what we do,” said Ritu Trivedi, managing director of the digital marketplace at MediaVest. “I would definitely say it’s slowly moved from a nice-to-have to a must-have.”

“Media is going to want to be where the audience is,” explained Nick Tran, head of social media at Taco Bell. “I expect to see more paid media growth in [social media] as audiences continue to grow on those platforms.”

“I think that budgets are going to grow in terms of paid social media in advertising,” said Catherine Schenquerman, manager of digital advertising at JetBlue Airways. “Time spent, coupled with the fact that the large players in the social space finally have a ‘Chinese menu’ of advertisement options available for brands, can only bode well for social media advertising.”

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 5

SOCIAL ADVERTISING IS PROVING ITS EFFECTIVENESS Steps that Facebook, Twitter and others took in 2013 to show how their ad products drive positive outcomes will help open up more budgets for 2014.

The key to the transition, according to agency and marketer executives interviewed by eMarketer, is that Facebook finally started talking in a language that all marketers understand: sales, conversions and results.

“If we had been able to truly show the value of a fan, today we would still be talking about it,” said Trivedi. “A lot of magic has to come together for us to actually deliver on the value of a fan. How are they being affected by social media? Do they actually go and buy the product? Do they come back? Do they become an advocate? Do they not? We don’t necessarily have the right kind of pipelines where these things can be connected.”

Hitting that wall meant going back to the drawing board and changing the conversation toward one that showed results that matter to brands.

In a sign of just how far social media has come, respondents to RBC Capital Markets’ study with Advertising Age in September 2013 ranked Facebook second to Google in terms of advertising ROI, ahead of Twitter, LinkedIn, Yahoo! and AOL. Even more telling was just how close Facebook came to Google, separated by just one-tenth of a point on the scale.

scale 1-6*

Advertising Platforms Considered Important AmongUS Marketers, Ranked by ROI, Sep 2013

Google 2.1

Facebook 2.2

Twitter 3.0

LinkedIn 3.4

Yahoo! 4.2

AOL 5.6

Note: n=574; read chart as saying that marketers consider Google,Facebook and Twitter to have better ROI than LinkedIn or Yahoo!; *where1=most importantSource: RBC Capital Markets and Advertising Age, "Facebook, Inc.," Sep 12,2013163995 www.eMarketer.com

“A big part of the reason for the increasing advertiser presence on [Facebook] could be improving ROI,” RBC Capital Markets wrote in a September 2013 research note. “The fact that advertisers are increasing ad spend on Facebook because of improved ROI may indicate that they are moving beyond the experimental phase and see [Facebook] as a sustainable marketing channel going forward.”

In a Q3 2013 study by Adobe, the clickthrough rate on Facebook ads was up 275% compared with Q3 2012, while the cost per click dropped 40% year over year. These sorts of results have made Facebook more attractive for brand advertising, Adobe said.

Measuring the impact of social media on sales has been a perennial challenge for marketers. In Chief Marketer’s August 2013 study, 53% cited that as one of the biggest frustrations of social media marketing, ranking second to the 58% who said it was “hard to determine ROI.”

Now, Facebook and others are offering ad products that are more in line with advertisers’ expressed goals. Facebook, for example, recently overhauled its entire ad infrastructure to require advertisers to choose one of eight business objectives, such as website conversions or app installs, when they start the process to buy advertising.

This way, Facebook can suggest ads that are more likely to meet those objectives. Previously, advertisers could select what type of ad they wanted without considering their objectives first.

Other product offerings and partnerships also bring measurement of effectiveness to the forefront:

Custom Audiences: This Facebook ad product, which allows marketers to bring their own customer data into the mix and deliver targeted, segmented messages based on customer attributes, was a strong success in 2013.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 6

“Imagine if you’re a car company such as Ford [Motor Co.],” said Gordon Evans, vice president of product marketing at Salesforce.com. “You probably have a list of everyone who bought a Ford minivan five years ago, and you may want to upload that list of names to Facebook to target those people for an upgrade to the 2013 Ford minivan. But you might also have a list of names of everyone who has taken a test drive in the past 30 days, and you might want to send them a different campaign on Facebook. What we’re seeing is these new capabilities, like Facebook Custom Audiences, allow brands to be even more effective.”

A similar product, called Lookalike Audiences, lets advertisers find and target users who are similar to their own customers.

Data partnerships: Facebook and Twitter both struck significant partnerships in 2013, with the goal of helping marketers see the results of their advertising. Data from companies such as Datalogix, Axciom and Epsilon helps Facebook advertisers determine whether someone who saw a Facebook ad ended up making a purchase. The data can also help advertisers target ads based on prior purchase behavior.

Meanwhile, in a study conducted in 2013 by Datalogix and Twitter, brand followers who saw Promoted Tweets from a brand ended up buying 29% more from that brand than those who saw the brand’s organic tweets alone. Twitter formed a partnership with Datalogix in August 2013.

Mobile app install ads: Ads that encourage Facebook users to download and install mobile apps have seen a strong uptick in usage. According to an October 2013 article in the Financial Times, the number of such advertisers reached 8,400 in Q2 2013, up from 3,000 in Q1 2013.

“Mobile app installs have been big and are driving a lot of volume,” said Rob Leathern, founder and CEO of ad technology company Optimal. “Advertisers tend to say the Facebook user is a higher-quality user than some of the installs they get from other mobile web sources.”

At the root of all these efforts is the desire to show that advertising on social media works by using the metrics and the tools that display advertisers already are familiar with. The work toward that goal is by no means done, but the foundation laid in 2013 will help more ad dollars flow to social properties.

“Social has proven that it can truly deliver on engagement, it can truly deliver on brand relationships,” said MediaVest’s Trivedi. “All the things that Twitter is doing and Facebook is doing are bringing it more upstream when clients think about the media mix.”

SIGNIFICANT GAINS IN SOCIAL AD SPENDING US social network ad revenues continue to rise at a rapid pace. For many of the reasons highlighted above, eMarketer expects 2013 ad revenues to grow even faster than in 2012. We estimate that ad dollars earned by US social platforms—which include spending on paid ads appearing on social networking sites, games or other applications, and exclude nonadvertising marketing spending on social collateral—will rise 37.4% this year to reach $4.32 billion.

billions, % change and % of digital ad spendingUS Social Network Ad Revenues, 2011-2015

2011

$2.45

27.0%

7.6%2012

$3.1428.5%

8.5%2013

$4.32

37.4%

10.2%

2014

$5.50

27.2%

11.6%

2015

$6.70

21.9%

12.8%

Social network ad revenues% change % of digital ad spending

Note: includes paid advertising appearing within social network sites, socialnetwork games and social network applications; excludes spending by market-ers that goes toward developing or maintaining a social network presenceSource: eMarketer, Aug 2013

162038 www.eMarketer.com

eMarketer projects that in 2014, US social network ad revenues will increase 27.2%, to $5.50 billion. At that point, 11.6% of digital ad spending will go toward social networks, up from 10.2% this year.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 7

Among US agency executives surveyed by STRATA in July 2013, 34% said between 6% and 10% of their clients’ ad budgets were going toward paid social media, and an additional 8% said 11% to 25% were.

% of respondents

Percentage of Clients' Ad Budgets Allocated to PaidSocial Media According to US Agency Executives, July 2013

0%-5% 58%

6%-10% 34%

11%-25%8%

Source: STRATA, Aug 20, 2013164291 www.eMarketer.com

In a May 2013 survey by The Creative Group, 62% of US marketers and agency executives said they expected to increase their advertising and marketing spending on Facebook, while around half were planning increases for LinkedIn, Google+ and Twitter.

Only single-digit percentages of respondents said that they planned to decrease their spending on Facebook, LinkedIn or Google+, while Twitter and other sites were expected to see slightly higher declines.

% of respondents

Change* in Companies' Ad/Marketing Spending forSelect Social Media Sites According to US Marketersand Agency Executives, May 2013

Pinterest35% 46% 12% 6%

Instagram32% 48% 13% 7%

Increase No change Decrease Don't know/no answer

Note: n=300 marketing executives from companies with 100+ employees; n=100 ad executives from agencies with 20+ employees; numbers may not add up to 100% due to rounding; *in the next 12 monthsSource: The Creative Group as cited in press release, July 17, 2013160885 www.eMarketer.com

Facebook62% 30% 6%

2%

LinkedIn51% 42% 4%

3%

Twitter48% 37% 12%

3%

Google+50% 41% 7%

2%

YouTube40% 46% 12%

2%

The momentum of 2013 should carry over into 2014, especially as the social properties make additional headway in areas such as video advertising, programmatic buying and location-based advertising.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 8

THE VIDEO OPPORTUNITY

The intersection of social media and video will be one

of the biggest trends to watch in 2014. Advertisers

will have multiple venues to place video advertising in

social media next year, further fragmenting the video

marketplace and leading to challenging decisions

about where best to allocate video ad dollars.

Facebook: Facebook’s long-awaited video ad platform should launch by the end of 2013, providing brand advertisers the most flashy and eye-catching way to advertise on the social platform yet. The ads are expected to cost as much as $2.4 million per day.

While eMarketer does not forecast Facebook’s video ad revenues, others have. Investment bank Jefferies said in a September 2013 research note that video ads could be Facebook’s “next billion-dollar business.” Cowen and Company was equally aggressive, pegging video revenues at nearly $1.31 billion in 2014—13% of Facebook’s projected total ad revenues of around $9.67 billion.

Facebook is still finalizing the way the ads will appear, but it is likely they will auto-play silently as a user scrolls his or her feed. If someone clicks on the ad, the audio will play, Reuters reported.

Twitter: Video ads are available on Twitter via its Amplify product, which incorporates short pre-roll ads into video clips that Twitter’s media partners upload. The pre-roll advertiser then pays Twitter to promote the video clip.

Amplify has seen rapid growth since being launched earlier this year. Media partners include CBS, Viacom, the NFL and the NBA.

Twitter’s Vine short-form video service also is appealing to advertisers as an organic video distribution platform. But next year, Twitter may develop an ad product based on Vine. Although it said in its IPO filing that it has no plans to place ads on the Vine service itself, advertisers can already buy Promoted Tweets to support their Vine videos.

Instagram: Image and video ads have arrived at Instagram, with a slow rollout designed to ease users into the idea of seeing paid marketing messages in their stream. As with Facebook, the key to success will be whether marketers can create ads that are eye-catching enough to make users stop scanning their feed and play the ad.

“Instagram is a highly coveted demo for brands. Instagram could also be the kind of medium that ports well to mobile video ads in-stream,” Deutsche Bank wrote in a September 2013 report.

All of this momentum toward video in social media means that marketers will have tough decisions about where to place their video ad dollars. Goldman Sachs, in a September 2013 research note, estimated that the combined US digital and TV video market would reach $70 billion in 2014, and that Facebook could become a major player very quickly.

For Facebook, video provides new opportunities for brand advertisers. “Once Facebook brings that product to market, it’s going to unlock the more premium brand dollars,” said Dave Marsey, executive vice president and managing director at Digitas San Francisco.

Others believe that video on Facebook will help with objectives that are closer to the purchase decision.

“Video in general we know tends to affect mid-funnel brand metrics,” said Jon Anselmo, senior vice president and managing director of digital innovation at Starcom MediaVest Group. “So having a video out where there’s massive reach, if you can do it in a meaningful way, there’s definitely a lot of interest there.”

For Twitter, the potential is to allow advertisers to sync up their TV campaigns with their social media efforts, as well as to associate advertisers with fresh, real-time content. Speaking about Twitter’s Amplify product, Marsey said, “Do you want to see an amazing [basketball] shot that is brought to you by Taco Bell?” To him, the answer is “yes.”

As the lines between TV advertising and digital video advertising continue to blur, social media companies will aggressively go after those ad dollars. The intersection of social media and TV, already a big story in 2013, will only get bigger next year.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 9

SOCIAL = MOBILE

In 2013, Facebook didn’t just prove that it had a

mobile ad business, it became a formidable presence.

Only Google will have higher US mobile ad revenues

than Facebook this year.

There is no question that social media has played an enormous role in the growth of mobile advertising, particularly the display market. Next year, the line between social and mobile will blur even more, and social will continue to play a leading role in defining what mobile advertising looks and feels like.

“As we’re thinking about social, we’re not delineating it from mobile; our assumption is that if it’s social it probably also is mobile,” said Macy’s Kasper.

That philosophy is growing among advertisers, which look to social media properties as an easy way to reach the mobile audience. The fact that social networks know who those users are—and are able to tie them to their desktop user via their login or username—is a huge advantage over many other mobile advertising opportunities where publishers or networks might say they can identify individuals in both their desktop and mobile form but likely can’t do so with accuracy.

“Social is going to continue to drive mobile usage and mobile spend,” said AKQA’s Symonds. “As we plan buys, we have to be deliberate about what mobile platform we’re planning for. If we’re working with Twitter and Facebook and Tumblr, and mobile is a natural extension of what they do, you just get good mobile coverage accidentally.”

Revenues from mobile are growing at a strong clip. In Q3 2013, Facebook earned 49% of its total quarterly ad revenues of nearly $1.8 billion from ads in the mobile newsfeed, according to company financial documents. In addition, mobile newsfeed ad revenues grew 33% between Q2 2013 and Q3 2013, which the company attributed to a rise in ad rates for mobile ads, an increase in mobile users, and gains in the number of ads shown to mobile users.

In August 2013, before Facebook released its Q3 2013 results, eMarketer forecast that Facebook would have nearly $1.27 billion in US mobile ad revenues this year, rising to almost $2 billion in 2014. We expect Twitter to have $266.0 million in US mobile ad revenues this year, hitting $450.3 million next year.

millionsNet US Mobile Ad Revenues, by Company, 2011-2015

Google

Facebook

YP

Pandora

Twitter

Apple (iAd)

Millennial Media

Other

Total

2011

$750.0

-

$93.3

$120.0

-

$38.3

$36.1

$530.1

$1,567.8

2012

$2,171.4

$390.9

$252.0

$238.1

$134.9

$123.8

$61.3

$990.8

$4,363.2

2013

$3,984.4

$1,267.4

$378.0

$375.7

$266.0

$240.0

$94.4

$1,902.4

$8,508.3

2014

$6,327.5

$1,949.9

$510.3

$538.9

$450.3

$419.2

$139.4

$2,750.3

$13,085.7

2015

$9,293.5

$2,398.5

$637.9

$732.6

$626.7

$692.8

$192.2

$3,986.6

$18,560.8

Note: net ad revenues after companies pay traffic acquisition costs (TAC) topartner sites; includes display (banners and other, rich media and video),search and messaging-based advertising; ad spending on tablets isincluded; numbers may not add up to total due to roundingSource: company reports, 2012 & 2013; eMarketer, Aug 2013161805 www.eMarketer.com

eMarketer estimates that Facebook and Twitter combined will account for 18.7% of the US mobile internet ad market in 2014.

% of total

Net US Mobile Internet Ad Revenue Share, byCompany, 2011-2015

2011 2012 2013 2014 2015

Google 57.0% 52.5% 48.2% 49.2% 50.6%

Facebook - 9.4% 15.3% 15.2% 13.1%

YP 7.1% 6.1% 4.6% 4.0% 3.5%

Pandora 9.1% 5.8% 4.5% 4.2% 4.0%

Twitter - 3.3% 3.2% 3.5% 3.4%

Apple (iAd) 2.9% 3.0% 2.9% 3.3% 3.8%

Millennial Media 2.7% 1.5% 1.1% 1.1% 1.0%

Other 21.2% 18.5% 20.1% 19.6% 20.6%

Note: net ad revenues after companies pay traffic acquisition costs (TAC) topartner sites; includes display (banners and other, rich media and video)and search; ad spending on tablets is included; excludes SMS, MMS andP2P messaging-based advertising; numbers may not add up to 100% dueto roundingSource: company reports, 2012 & 2013; eMarketer, Aug 2013161803 www.eMarketer.com

In addition to Facebook’s strong showing, Instagram has the potential to drive significant mobile revenues. eMarketer hasn’t yet published a forecast for Instagram revenues, but at least two investment banks have tried. On the bullish side, Deutsche Bank estimated that Instagram would have $475 million in worldwide ad revenues in 2014, rising to nearly $1.8 billion in 2015.

“There are few platforms whereby advertisers can reach as many as 1 [billion] users globally in mobile, and [Facebook], Google and select others are likely to take the lion’s share of mobile spend,” Deutsche Bank analysts wrote in a September 2013 note about Facebook’s mobile revenue prospects.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 10

On the conservative side, Raymond James predicted that Instagram would have worldwide ad revenues of $178 million in 2014 and $456 million in 2015.

Within Facebook and Twitter, mobile has rapidly come to represent a significant portion of revenues. More than 70% of Twitter’s ad revenues worldwide came from mobile in Q3 2013, according to the company’s IPO filing. At Facebook, mobile has already grown to 49% of ad revenues and will likely move ahead of desktop as a percentage of revenues as soon as Q4 2013.

At LinkedIn, mobile is less of a driver. Only 38% of the service’s unique visiting members accessed the platform via mobile in Q3 2013, according to the company’s quarterly earnings conference call. LinkedIn doesn’t break out mobile revenues separately.

As mobile and social become even more tightly intertwined, new issues will come to the forefront. Chief among them is the possibility of ad overload in the feed. As of Q2 2013, one out of 20 newsfeed stories on Facebook was an ad, Facebook executives said during the company’s quarterly earnings call. During the Q3 2013 earnings call, executives reported that they did not expect to increase the number of ads in the newsfeed beyond the level they were at as of the end of Q3 2013. If it turns out that the number of ads has hit a ceiling, then the onus will be on Facebook to make sure that the ads are even more engaging and relevant than ever.

Another challenge will be to deliver ad products that meet advertisers’ objectives, whether they are sales, conversions, branding or some other goal.

Mobile “is the first screen, and I think it’s the most important screen, which means it’s going to be used for virtually every aspect of the marketing funnel—from brand building all the way to driving very specific direct-response objectives,” said Facebook’s Everson.

It is clear that 2013 was a year in which social media and mobile became permanently intertwined. Thus far, much of the growth of social as a percentage of mobile ad spending has been less about making a deliberate choice to shift dollars to mobile and more about the social properties’ willingness to make that decision for marketers.

In 2014, more marketers will make conscious decisions to spend dollars advertising in mobile, and the extent to which social media companies can offer ad products that take advantage of the uniquely mobile environment will determine just how big a chunk of the pie they will get going forward.

NATIVE EXPANSION

Social media companies proved in 2013 that

native advertising could work. In 2014, the focus

will be on ways to scale that business without

irritating consumers.

Executives interviewed by eMarketer expressed both satisfaction and concern regarding native ads in social media.

“We’re at an inflection point on native,” said Digitas’ Marsey. “We’ve had success with it, we’ve shown how it can work; the question now is how do you sustain and then grow it?”

“Consumers catch on quickly. At first, native ads may seem less like ads because they are less intrusive, hence prompting better response rates. But the moment that these experiences repeatedly fail to deliver on relevancy, consumers will stop engaging with them,” said JetBlue’s Schenquerman. “The industry needs to be smart about sparingly seeding relevant native advertising in order to protect the value.”

Many advertisers would like to find ways to scale their native advertising, either by distributing similar ads to multiple publishers (such as by using a native ad advertising network) or by using tools that make the creation and deployment of such advertising easier.

“In two years, it will be standardized to a point where the advertiser can mix and match and optimize [native advertising] in a fairly standard form,” said Ragy Thomas, founder and CEO of Sprinklr, a company providing social media management technology.

Native advertising could prove most problematic in mobile. Social media users would likely tolerate fewer ads in their mobile feeds than on the desktop due to desktop’s larger canvas.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 11

However, US mobile marketers consider native advertising to be one of the most important developments, with 74% of those surveyed by Ovum and the Interactive Advertising Bureau in 2013 considering them important or very important.

% of respondents

Importance of Select Developments in MobileAdvertising According to US Mobile Marketers, 2013

Responsive design

HTML5

Mobile nativeadvertising

Programmatic buying

Mobile rising stars

Real-time bidding

MRAID

Other

Veryimportant

54%

40%

36%

31%

27%

25%

21%

11%

Important

33%

37%

38%

40%

40%

30%

34%

8%

Slightlyimportant

6%

10%

9%

15%

12%

19%

16%

5%

Notimportant

4%

5%

7%

6%

9%

20%

10%

17%

Don'tknow

4%

8%

10%

8%

13%

7%

20%

60%

Note: numbers may not add up to 100% due to roundingSource: Interactive Advertising Bureau (IAB) and Ovum, "MarketerPerceptions of Mobile Advertising 2013," Sep 24, 2013164282 www.eMarketer.com

For native advertising to continue to grow in 2014, social media publishers will need to judiciously increase the number of ads users see, while at the same time refining the targeting and creative to drive engagement and response. The better the ads perform, the higher the price they will command.

In 2014, it will also get easier to compare the effectiveness of native advertising with other types of ads. Because native is by definition unique to the platform it appears on, so far it has been difficult to compare results.

A small survey of 21 publishers conducted by the Online Publishers Association in June 2013 found that marketers were most often using engagement or time spent metrics to determine the impact of their native ad campaigns. Tools to track other metrics, such as cost per session or cost per click, will likely become more widely available next year.

% of respondents

Most Important Metrics that Marketers Are Using toMeasure the Impact of Their Native Ad CampaignsAccording to US Publishers, June 2013

Engagement/time spent57%

Traffic43%

Social media sharing33%

Brand lift24%

Engagement with the content such as comments19%

Cost per view/session10%

Cost per click10%

Other5%

Note: n=21; respondents selected their top 2 metricsSource: Online Publishers Association (OPA) and Radar Research, "PremiumContent Brands Are Native Naturals," July 10, 2013160511 www.eMarketer.com

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 12

SOCIAL ADS GET MORE PROGRAMMATIC

Real-time marketing and programmatic advertising

were two topics on many marketers’ minds in 2013.

The intersection of these two trends will play out

more fully in 2014. New tools and technology will

allow marketers to rapidly promote their real-time

content initiatives and to place other types of social

advertising more quickly.

In its Q3 2013 advertising trends report, ZenithOptimedia said programmatic buying would help contribute to an increase in social media ad spending. “Total social media advertising is expected to increase 35% in 2013, 35% in 2014 and 32% in 2015,” the report said. “We are attributing the growth in 2014 and 2015 to the rise in programmatic social buying that will begin to take hold.”

MAGNA GLOBAL, in an October 2013 forecast for programmatic ad buying, estimated that this year, $3.5 billion in ad transactions in the US would take place in automated platforms, including social media platforms such as Facebook Exchange (FBX) as well as the social sites’ APIs.

The term “real-time marketing” means different things to different segments of the ad industry. In the broadest sense, the push toward real-time means that companies work to speed up their creative process and respond more quickly to unexpected marketing opportunities. In the narrowest definition, real-time means exactly that—a marketing or advertising message delivered in milliseconds based on some trigger.

Marketers can expect this continuum to narrow over time, and programmatic techniques will help pave the way, making it easier to buy and place advertising in social media.

Here are some of the ways this might happen:

Facebook opens up more of its internal data to programmatic advertisers: Facebook currently doesn’t allow FBX advertisers to use Facebook data for ad targeting. However, the social network recently began allowing advertisers that use its Custom Audiences ad product to do some of the same retargeting that FBX allows. This will lead to greater use of programmatic techniques to place advertising that is designed to boost and spread the content that marketers post to Facebook.

Ad systems get faster: Marketers have complained that they don’t have the ability to move quickly to buy paid media to support their organic marketing on Facebook. Many advertisers look for posts to reach a certain viral threshold without support before deciding to turn on paid advertising to continue to spread the message.

Optimal’s Leathern said that in his experience, “some of these ad platforms, like Facebook, take 15 minutes to turn on a native ad.”

External triggers get incorporated into social ad systems: Optimal is rolling out a technology called Open Signals that takes third-party data and uses it to inform ad delivery within Facebook. For example, a movie studio could set an ad to appear in someone’s feed within 2 seconds of a TV commercial starting. Or a retailer could trigger newsfeed ads to appear in a given geography if stores in that geography had lower-than-average foot traffic that day.

Programmatic technology such as this will enable advertisers to more easily take advantage of a fleeting opportunity.

Specialized exchanges open up to buy social ad inventory: Some expect ad exchanges to be formed to enable social ads to be bought across multiple sites. “Like with every industry, the advertising will standardize itself over time,” said Sprinklr’s Thomas. “What social is doing differently is the fact that you are personalizing the advertising with friends’ or colleagues’ information. So how do you work that in scale, and how do you normalize it between networks? Those are the nuances that social ad agencies have to figure out.”

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 13

Technology will help speed up the creative process: Today, advertisers can dynamically target their ads and make buys in split seconds. But the creative process has been less easy to speed up.

Agencies and technology firms are working on ways to cut the time it takes to develop social media advertising. In one example, cited by MediaVest’s Trivedi, the agency is developing tools to make the creative more dynamic and personalized.

For many clients, real-time creative “feels very cumbersome—and expensive,” Trivedi said. “The media will really become effective when it’s paired with the right message.”

“I think the biggest promise for automation for us is what we’re doing with targeting. So if someone tweets out, ‘I like Oregon State,’ we can actually push to that person a clip from the Oregon State game in progress,” said Glenn Brown, senior director of Twitter Amplify. “Automation is a really cool part of it. The copy and the creative, though, are always going to be human.”

Automating aspects of advertising will make it easier for brands that have been skeptical of real-time marketing to get involved.

“Right now, our campaigns are not done in real time,” said Silvia Galfo, senior vice president of marketing at Lancôme. “I think that for any marketer, joining the conversation and being contextually relevant is the direction that a lot of campaigns are going.”

MOVING BEYOND THE WALLED GARDEN

There has long been speculation that social media

companies would eventually sell advertising

outside of their own walls. Most of the focus has

been on Facebook, but Twitter grabbed attention

by announcing in September that it would acquire

MoPub. MoPub’s network of mobile apps and

mobile content sites will give Twitter a new revenue

stream and provide a testing ground for mobile

native advertising.

A few days after the acquisition announcement, news surfaced that Facebook had started testing its own mobile ad network again, after an earlier foray in 2012. “We’re currently running a second test to show Facebook ads off Facebook in mobile apps and on mobile sites,” Facebook said in a September 2013 Business Insider article.

The tit for tat between these two companies, combined with moves by Google to incorporate more social data into ads, indicates that in 2014, advertisers will finally get what they had been hoping for: the ability to use rich social media user data to reach consumers across digital channels.

Twitter’s plans are highly speculative thus far, but many believe that it will use its own data to help target ads outside of its service.

“Twitter has a huge amount of insights, second by second, around what people are doing and expressing and sharing,” said Digitas’ Marsey. “The ability [for Twitter] to take that knowledge and put it outside its walls is powerful.”

How Twitter uses MoPub to extend native advertising outside of its walls will also be important to watch. There is significant interest in mobile native advertising, and if Twitter is successful at rolling out ad products that uniquely fit with the apps, rather than layer awkwardly on top, it could be highly attractive.

And what might Facebook do? The opportunity to take the data it has gathered about its users and use it to deliver advertising outside of its walls is compelling—but also a huge privacy headache. Advertisers are very interested in the idea, however, so the odds are that Facebook will figure out a way to do it.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 14

“As we talk to our clients about how they play in the social space, it’s all about interests. What is our customer interested in? How as a brand can we be relevant back to them?” Marsey said. “Facebook has so much data on that. To take it outside of Facebook’s walls is a huge opportunity. I see that as something that it absolutely has to do in the coming year.”

One way Facebook might do this is via the Atlas ad-serving technology it acquired from Microsoft this year. Since the acquisition, Facebook hasn’t said much publicly about what its intentions are. But some of the executives eMarketer interviewed believe Facebook would make more of Atlas in 2014.

Google, meanwhile, is expanding the ways it uses social data from its own services, including Google+. If someone rates or reviews a product or restaurant, for example, that information could appear in an ad shown to that user’s friends.

How extensively these companies use their precious user data will be a key area to watch next year. Advertisers are enthusiastic about getting access to more targeting capabilities, but the potential for missteps and backlash is high.

LOCATION MAKES A COMEBACK

If it seemed like the momentum behind the “Lo” in

“SoLoMo” was absent in 2013, it’s true. But that will

change in 2014.

As of now, geotargeting at Facebook is quite broad. Advertisers can target ads at the country, state, city and ZIP code levels. Twitter’s geotargeting parameters are similarly wide.

Many executives interviewed by eMarketer speculate that both social networks will introduce more precise geotargeting capabilities soon.

“There’s going to be a continued push toward the geolocation and geotargeting content,” said Morgan Johnston, social media strategist at JetBlue. “To be able to geotarget specific demographics, specific locations—those are great opportunities that we’re seeing.”

“We’ve got the So, we’ve got the Mo, but for SoLoMo, the magic still has to happen,” said Trivedi. “That’s something I’m still looking for—for properties or technologies or for Twitter or Facebook to truly start owning SoLoMo.”

So far, few advertisers have taken advantage of the opportunity to deliver targeted marketing messages in social media based on location. In Chief Marketer’s 2013 survey, just 9% of US marketers and agencies said they had used or planned to use geosocial networks to deliver coupons, discounts or offers. However, respondents were likely thinking of location-based social networks such as foursquare, rather than Facebook or Twitter, when they answered.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 15

% of respondents

Social Media Tools and Tactics that US Marketers andAgencies Currently Use or Plan to Use in 2013

Social media buttons on brand's web content62%

Social media buttons in email55%

Facebook/Twitter/Pinterest links in all marketing messages54%

Unique content as rewards for engaging with brand46%

Coupons/discounts/offers exclusive to social followers33%

Display ads in social networks32%

Coupons/discounts/offers that are shareable26%

Coupons/discounts/offers targeted to geosocial networks9%

Other4%

Source: Chief Marketer, "2013 Social Marketing Survey," Sep 24, 2013164302 www.eMarketer.com

Some of the reluctance may come from the fact that only three in 10 social media users use location tagging, according to a May 2013 survey from Pew Research Center’s Internet Project. Even among the youngest group surveyed, those ages 18 to 29, just 32% tagged their location when using social media.

Without a significant base of information about user location, the impetus to use location-targeted ads is low. However, the social media companies are working to change that. In October 2013, Facebook expanded a partnership with Cisco Systems to provide free Wi-Fi to people who use their Facebook credentials to log in when they are at a local business that participates in the program.

Once they sign in, users are taken directly to the Facebook page for the business they’re in, where they can add a check-in, “like” the business or otherwise interact with it.

Although Facebook hasn’t launched any ad products in conjunction with this service, it’s easy to imagine that the location of the user could be combined with the information Facebook already knows about that person in order to deliver geotargeted ads.

An even bigger opportunity is to use real-time geolocation data to deliver ads to social media users.

Waze, the social traffic/mapping app acquired by Google this year, is one such example. It allows advertisers to place a branded pin that appears on a Waze map when a user gets close to the advertiser’s location.

“Geotargeting and the specific latitude/longitude locations are going to become central” to mobile advertising, said Starcom MediaVest Group’s Anselmo. “Those are the things that allow us to craft more personalized messages and experiences for consumers.”

For more on geolocation-targeted mobile ads, see eMarketer’s October 2013 report, “The Effectiveness of Geotargeted Mobile Ads: Location Data Pumps Up Performance.”

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 16

NEW VENUES, NEW AD OPPORTUNITIES

Facebook, Twitter and LinkedIn may dominate social

media, but the entrance of Instagram and Pinterest

as ad venues shows that there are still new choices

when it comes to where to place ad dollars in the

social space.

In a July 2013 survey by Econsultancy and Adobe, the big three accounted for 83% of social ad spend among agencies and 76% among client-side marketers. That leaves many smaller players (Instagram and Pinterest among them, in addition to Google+) fighting for at most one-quarter of social ad budgets.

Agencies Client-side

% of total

Allocation of Social Advertising Budget Among SelectSocial Networks According to Agencies vs. Client-SideMarketers Worldwide, July 2013

LinkedIn15%

Twitter15%

Other17%

Facebook53%

LinkedIn18%

Twitter17%

Other24%

Facebook41%

Source: Econsultancy and Adobe, "Optimising Paid Media," Sep 5, 2013164055 www.eMarketer.com

Instagram’s entry into advertising will be slow and deliberate. Its ability to generate ad revenues will be an important test of advertiser demand for mobile native ads in social media.

Facebook allows its advertisers to choose whether they want to be on desktop or mobile, but more often it makes that decision for the advertiser, placing the ad in the environment it thinks will get the best results. Instagram, being a mobile service, won’t have that option.

Pinterest is taking a similarly slow approach, and marketers and retailers with ecommerce goals were the first to experiment with its offerings. The social platform began testing Promoted Pins in October 2013; the ads look similar to other pins except that they carry a “Promoted Pin” tag.

“We are very curious about how paid media will be incorporated into Pinterest and Instagram,” said Macy’s Kasper. “As social channels become more visual and as we see authentic images working more effectively to communicate with our customers, we’re very excited that those are platforms we might be able to tap into differently.”

In addition, marketers will use these newer, or smaller, platforms to reach audiences who may not be on the larger services or may not be using those services extensively.

“As big as Facebook is and as big as Twitter is, there seems to be a lot of interest in some of these smaller ones,” said AKQA’s Symonds. “It suggests to me that there’s still a lot of robustness and health in all these communication platforms and all this social chatter.”

Google+, while not a new ad venue, is drawing somewhat increased interest among the executives interviewed by eMarketer. They are intrigued by Google’s moves to add more social endorsements to advertising and also the ways Google+ might evolve to enable more geotargeted advertising.

Another type of service that may pose more of a challenge to the larger services in 2014 is mobile messaging apps such as WhatsApp, Snapchat, WeChat and LINE. Though the latter two are most commonly used in Asia-Pacific markets, WhatsApp and Snapchat are based in the US. Snapchat, WeChat and WhatsApp don’t offer advertising; LINE does sell ads but makes the majority of its revenues from sales of virtual goods and stickers.

Their fast-growing user bases will make them attractive to marketers seeking organic opportunities. And if the services follow the typical social media model of building usage and adding advertising slowly, then it is very possible that marketers will see new ad opportunities in the messaging apps in 2014.

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 17

EMARKETER INTERVIEWS

Facebook Looks Beyond the Social Media Part of Its Business

Carolyn Everson Vice President, Global Marketing Solutions

Facebook Interview conducted on October 8, 2013

Lancôme on Social Media Best Practices

Silvia Galfo Senior Vice President, Marketing

Lancôme Interview conducted on October 1, 2013

Macy’s Says Social Media Strategy Begins with Good Content

Jennifer Kasper Group Vice President, Digital/New Media & Multicultural Marketing

Macy’s

Interview conducted on September 27, 2013

Taco Bell Mixes in Each Social Platform as Appropriate

Nick Tran Head of Social Media

Taco Bell Interview conducted on September 17, 2013

Jon Anselmo Senior Vice President and Managing Director, Digital Innovation

Starcom MediaVest Group

Interview conducted on September 16, 2013

Chris Bowler Vice President, Social Media

Razorfish Interview conducted on September 11, 2013

Glenn Brown Senior Director, Twitter Amplify

Twitter Interview conducted on October 1, 2013

Gordon Evans Vice President, Product Marketing

Salesforce.com Interview conducted on September 13, 2013

Peter Goodman Vice President, Salesforce Marketing Cloud

Salesforce.com Interview conducted on September 30, 2013

Morgan Johnston Social Media Strategist

JetBlue Airways Interview conducted on October 2, 2013

Rob Leathern Founder and CEO

Optimal Interview conducted on September 17, 2013

Dave Marsey Executive Vice President and Managing Director

Digitas San Francisco Interview conducted on September 11, 2013

Alessio Rossi Vice President, Interactive and Ebusiness Marketing

Lancôme

Interview conducted on October 1, 2013

Catherine Schenquerman Manager, Digital Advertising

JetBlue Airways Interview conducted on October 2, 2013

Scott Symonds Managing Director, AKQA Media

AKQA Interview conducted on September 16, 2013

Ragy Thomas Founder and CEO

Sprinklr Interview conducted on September 13, 2013

Ritu Trivedi Managing Director, Digital Marketplace

MediaVest Interview conducted on October 2, 2013

SOCIAL MEDIA ADVERTISING: SEVEN TRENDS FOR 2014 ©2013 EMARKETER INC. ALL RIGHTS RESERVED 18

RELATED EMARKETER REPORTS

Marketing on LinkedIn: New Opportunities, but Old Issues Remain

US Ad Spending: Q3 2013 Forecast and Comparative Estimates

RELATED LINKS

Advertiser Perceptions

Advertising Age

Chief Marketer

The Creative Group

Econsultancy

Grant Thornton LLP

Interactive Advertising Bureau (IAB)

Online Publishers Association (OPA)

Ovum

RBC Capital Markets

Sharethrough

STRATA

EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Senior EditorKaitlin Carlin Copy EditorJoanne DiCamillo Senior Production ArtistStephanie Gehrsitz Senior Production ArtistDana Hill Director of ProductionNicole Perrin Associate Editorial DirectorHeather Price Copy EditorAllie Smith Director of Charts