BUSINESS BLOGS
BUSINESS BLOGS
category: business
25 May 2007

“The biggest innovation in the advertising industry during the last 70 years before digital was color TV,” says Ajaz Ahmed, chairman and co-founder of independent digital marketing agency AKQA. “The agency of the future will be half a software company and half an entertainment company because that’s the new landscape.”

I love that line.

More, from an article off WSJ:

Marketers — seduced by the perception that Internet ads offer a more cost-effective way to reach specific consumers and measure results — have shifted more of their ad budgets online. Internet advertising has grown into a $16.9 billion industry — 5.9% of the $285 billion total U.S. advertising market in 2006, up from 4.7% in 2005, according to the Interactive Advertising Bureau.

I thought we were at 7-8%, but it looks like online ads are only at 5.9%… people spend on average 25% of their time online.  I recall seeing 7-8% earlier this year when I was putting together our business plan.

“According to McCann Worldgroup, Internet ad spending as a percentage of the total for all American media will reach 7.1% in 2006 and 10.4% percent in 2009.  Using the $285.1 billion figure for total American advertising, and the 7.1% share for Internet advertising, then this pegs the size of online advertising at $20.2421 billion, and this excludes paid search.”

With the IAB and PWC announcing final 2006 revenue figures at $16.9B, cleary McCann Worldgroup’s 7-8% - which would have meant $20B in revenue for digital - was too aggressive.  But the flip side is that this means it’s still really, really early in the game. 

Do the math.  5.9% of ad budgets = $16.9B.  Total advertising market in the US alone: $285B.  Looking at the following, you can see the upside:

The assumption is that total advertising in the US will grow 2.5% per annum, with online advertising growing 25% per annum, and capped off at 25%, which will match people’s consumption of online media as a proportion of total media consumption time.

I do not think it will be uniterrupted growth, of course, this was the mistake of most analysts in the first wave of the Web, but right now, given broadband penetration and more and more real marketers shifting ad dollars online, there’s no reason to assume the overall assumption is more right than wrong.  Lastly, this is US only.

Are prices for digital assets rising?  Yes, no doubt.  But do you see much of a letdown given that disequilibrium?  Probably not in the mid to long term, not by a long shot.