It would be easy to be bearish on the monetization prospects of social media. The lackluster performance of high profile IPOs has created a wave of negative headlines that has much of Wall Street (and Main Street) convinced that the space is a lot of hype, and maybe even the second coming of the dotcom bubble.

But those headlines ignore most of the key trends we see happening right now across the social media space and here at Mashable. Although we may be a biased observer — after all, digital advertising keeps the lights on at HQ — there are several compelling reasons to be excited about the marketplace heading into 2013 and beyond.

The Closing Mobile Monetization Gap

The skepticism around social media stems largely from the perception that the audience — especially on bellwethers like Facebook and Twitter — is moving quickly to mobile devices, where monetization has proven difficult. Kleiner Perkins partner Mary Meeker illustrated the monetization gap in her widely circulated annual trends report, which showed that although mobile now occupies 10% of people’s media consumption time, it commands just 1% of advertising budgets.

But there are signs of hope. Facebook is now making 14% of its ad revenue through mobile advertising thanks to its Sponsored Stories product (more on that in a moment). Twitter, which doesn’t publicly disclose its revenue numbers, is reportedly doing even better. And Google, the dominant player in mobile advertising, has grown its mobile ad revenue more than 160% this year, according to analyst estimates.

Part of that growth is the predictable trend of ad dollars finally starting to catch up to consumer preferences. That said, I would argue that part of the growth is also the result of the introduction of much more compelling mobile ad formats.

Responsive Ads

Until recently, mobile ads were generally really bad. On one side, tiny and unreadable banners; on the other, invasive and obnoxious interrupts. But that is starting to change thanks to responsive design, which publishers have been moving to in droves in the second half of 2012 (including Mashable).

Not only does responsive design optimize content for the screen you’re on, but it also optimizes advertising to serve the ideal sized unit. On a smartphone, that might mean a 300×250 ad. On a tablet or desktop, it’s likely a 970×90. And on an inbetween device like a 7” tablet or a plus-sized smartphone like the Galaxy Note, a 160×600.

Smarter design is also increasing value on the desktop. While non-responsive sites continue to load all banners on a page automatically, infinite scroll allows publishers like Mashable to only load ads when a user has started to move down the page. We think this is a major step in the debate around viewable impressions and makes the notion of “below the fold” largely irrelevant.

In-Stream Advertising

There’s no doubt that users have learned to ignore ads. Click-thru rates on banners have decreased from nearly 10% at the dawn of the 2000’s to around 0.2% today. That’s why advertising is moving to where users actually spend their time: in the stream of content and social media updates. While that trend will help lift the performance of display — or at least abate its decline — it’s also leading publishers to create so-called “native advertising” solutions that make in-stream ads work for advertisers and readers alike.

The most prominent examples of native advertising are Facebook’s Sponsored Stories and Twitter’s Promoted Tweets, which are fueling the ad revenue growth of both companies and also providing advertisers with encouraging results. On its second quarter earnings call, Facebook COO Sheryl Sandberg said, “As measured by click-through rates, Sponsored Stories in News Feed perform multiple times better on both desktop and mobile than ads in the right-hand column.”

Twitter is also optimistic about the results it’s seeing. “With Promoted Tweets, we’ve seen engagement rates from 1% to 3%, on average. On mobile, the engagement rates are even higher,” said a spokesperson earlier this year. The trend is clear across both platforms: When it comes to the metrics that matter in social, native ads are blowing traditional formats out of the water.

The conclusion then is that native advertising not only represents a way for advertisers to reach an engaged audience, but also allows us to do work that our readers love, that is a media business model that can get behind. And, coupled with the innovation we’re seeing across the industry in ad technology, a good reason to be excited about the future of the digital advertising market. (www.mashable.com,Image courtesy of iStockphoto, Remedios)