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Watching the Ad Dollars Move to Social Media

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The ad dollars are starting to move, and this is only the beginning.

Social media is now responsible not just for demand generation, but also demand fulfillment. People are using social media to find what they want as well as make purchasing decisions.

According to a new Forrester study, social networks are now the preferred method of discovery for a third of all people in the United States. Meanwhile, only 18 percent of people have found desired websites via sponsored search results.

Despite these numbers, paid search budgets in the U.S. will total nearly $20 billion in 2013, while social media is only expected to cross the $4 billion mark. So it makes sense that 64 percent of marketers plan to increase their social media spend in the next year.

The new consumer mindset is: I don't want to spend time searching for what I want; I want it to find me. Social platforms are perfect for this, because relevant products and services find their way into your feed based on your social graph (friends), interest graph (what you like)—and more recently purchase intent.

With Facebook's Custom Audiences tool, you can target people based on their opt-in email or phone number. This has proven quite successful—after JackThreads uploaded its 2 million emails to Facebook and targeted posts to those users, it increased sales 26 percent.

Better yet, a brand-new study shows that the most effective way to reach people based on transaction intent is by retargeting on Facebook. When showing users native newsfeed ads for products or services that they've considered buying on the brand's website, the click-through rate increases 21 times and cost per click decreases 20 percent as compared with traditional Web retargeting.



On Wednesday, Twitter announced its own retargeting solution.

(Read More: Twitter to Start Showing Users Targeted Ads)

As it ramps up, the company is releasing data that shows how well-promoted tweet campaigns perform. The case studies include a 150 percent increase in sales for HubSpot, a 1,200 percent increase in ROI for Bonobos and 47 percent of all referral traffic for the LA Galaxy.

Ultimately, the ace in social's sleeve is mobile. Social media dominates smartphone use. People spend more mobile time on Facebook every month than they do browsing in Safari and Google's Android browser combined.

But the spend is still playing catch up: Google currently commands 56 percent of the $16 billion mobile ad market, while Facebook accounts for 13 percent. (Facebook's projected mobile ad revenue of $2 billion will be a 300 percent increase from last year.)

(Read More: US Regulator Tells Web Search Firms to Label Ads Better)

Social networks can now drive brand recognition and sales, because consumer behaviors have changed and targeting offerings have evolved. But shifts in ad budgets are always a bit behind. Big ad agencies let the platforms blossom and then slowly refine their internal capabilities.

At the end of the day, this is math. Search and display ads will continue to be an important part of the marketing mix. They'll work hand-in-hand with social.

If you want to find the ad dollars, follow the people.

—Jason Stein is the founder of social media agency Laundry Service, and a partner in Windforce Ventures, a venture capital firm focused on social and mobile. Stein owns shares of Facebook. Tweet him @jasonwstein.

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