Do Facebook and Twitter Ad Network Make Sense?

(MoneyWatch)  According to Silicon Alley Insider, Facebook is looking at possibly building an online ad network based on Facebook Connect, though not for at least the next six months. And there's suspicion that Twitter could do the same. But then, how much good will it do them?

In the short term, the online ad outlook isn't good. The online ad market has not been immune from the general economy. For example, when Yahoo announced its first quarter 2009 results,, revenue was down 13 percent from the same period in 2008. Marketing services revenues had dropped by 12 percent and fee revenue was down by 20 percent. Although CEO Carol Bartz was aiming to be upbeat (as any CEO would try to do), she admitted that the company experienced "pressure in both display and search advertising." Yahoo expects that revenue for the second quarter will be in the $1.43 billion to $1.63 billion range. But revenue for the same period in 2008 was about $1.8 billion, so the top end of Yahoo's estimation for next quarter would be more than nine percent smaller and the bottom a full 20.6 percent lower. Google did a good sight better, with Q1 2009 revenue up six percent over the same period in 2008. However, in Google's case, that six percent climb represents a real slowdown in advertising growth.

More importantly, when you put these two companies together, you get nearly half the online ad industry's revenue, according to Karsten Weide, IDC program director of digital media and entertainment. That's enough to model the industry, at least in the US, and make a projection of how it's doing. The answer: US online ad revenue may shrink this year by six percent compared to 2008. Google's growth in search ads cannot offset drops in display and classified ads.

Numbers in the rest of the world are likely to be similarly gloomy. "If you look at the major European markets -- the UK, Germany, and France -- out of the top five web sites in each territory, four of them are US web sites," Weide says. Asia Pacific has more homegrown web presence, but anecdotes so far lead him to think that ad sales there are off as well.

Then there is the question of how well ad networks will perform for social networking companies. Weide says that when people are communicating -- the heard of social media experiences -- they are less likely to be susceptible to advertising. "Twitter is certainly useful, but so is web mail, and web mail isn't a big money maker," he says.

Faces image via Flickr user moon angel, CC 2.0.