I’m a bit wary of anything PriceWaterhouseCoopers has to say about the size of the online advertising market, anywhere, after they said that Asia will grow to be a $110B market by 2011. I wrote about this here.
Regardless, today they came out and in conjunction with the IAB announced record revenues for 2006 at $16.9B in the US and Q4 spending of $4.8B.
While some are quick to point out that this reiterates NYT’s assertion that online ad growth is slowing down, I think those omit the real phenomenon: globalization of growth that we will see in the next few years (more on that below).
This, naturally, is fantastic news, mainly since people spend 25% of their time online but marketers don’t spend 10% of their budgets online yet. As that continues to shift, obviously, these numbers will get bigger.
Furthermore, if Web-based media planning, creative and buying becomes central to non-interactive advertising (TV, radio, print, outdoors) then the real online value begins to look like a big, fat and juicy pie.
A few things stand out:
1 - Search Remains King, Display Gaining Traction, Video Boom to Come
We’re all getting very excited over video, but video is small. That 7% is not even all video, it’s rich media that includes video. My guess video was $500M tops, meaning right now it would be 4% or so. That means there is plenty of upside in video.
Online advertising is moving very quickly, from 2004 to 2006, the projected estimate for the online video advertising market grew from a slated $657 million in 2009 to $3 billion in 2010:
An estimate of the online video ad market for 2009 - set in 2004: $657 million
An estimate of the online video ad market for 2009 - set in 2005: $1.5 billion
An estimate of the online video ad market for 2010 - set in 2006: $2.3 billion
An estimate of the online video ad market for 2010 - set in late 2006: $3 billion
Anyway, point I’m trying to make is that it is imperative for an online media company to be able to offer advertisers a solution for search, video, classifieds, display/banners - and indeed, our company is positioned to do that.
But the simple truth is that with big marketers (F500 clients, ad agencies) shifting budgets online, display/banner ads will be taking off even more, while search will remain stable, video will creep up gently and indeed classifieds remains the wild card, mainly because major sites give classifieds for free and sell ads around it, so time will tell if that spending will be attributed to classifieds or other categories.
2 - Top sites getting less and less of ad dollars.
When I launched Mojo Supreme, the idea was that sure, the ABC, CBS, NBC and Fox’s of the Web were already cast (AOL, YHOO, MSFT, Google) but that there would be plenty of room for the MTV, ESPNs, etc. of this world. This graph and the decline in concentration of ad dollars spent on the top sites is a welcome sign of that.
I am, frankly surprised, because on some days I just think that Google is sucking it all in.
3 - CPM vs. CPC/CPA
[for a complete overview of online ad lingo, click here; for an overview of market sizes etc., click here].
The jury is out, on the one hand, advertisers become more and more sophisticated, asking for performance-based campaigns, but the flip side is that every additional market share percentage becomes harder to get, so many advertisers need to up their budgets and try out CPM-based ad campaigns, which are favored by publishers…
And, while the Web’s 2001-2005 resurgence was largely due to small and medium advertisers, as major advertisers continue to shift their budgets online, we expect a rise in CPM campaigns at the expense of performance-based ones. As well, the better quality inventory will command CPM, while the long tail will have no choice but to settle for hybrid.
This is why we’ve taken a content creation, aggregation, indexing strategy to create high quality content in the form of videos, and we aggregate and index text content we don’t have a comparative advantage in…
4 - The Globalization of Growth
All to say, the numbers are a welcome sign but it does reiterate the need to develop global strategies to profit from the growth overseas…
If you doubt me, consider this: in Canada (that big stretch of land above the USA), radio ads generated $1.3B in 2006, whereas Web ads garnered $1.01B during the same period.
In a few years, which one will be larger, do ya think?
Furthermore, if the Web is all about efficiency, more importantly, that means that the US’ Web industry at $16.9B is 16.7 times larger than Canada’s, yet:
- the US population is only 10 times larger than Canada… (penetration is roughly the same in the high 60%’s, with 22M in Canada and 211M Americans online).
- Canada skipped out on that whole dial-up thing and leapfrogged itself onto broadband.
- Between colder days, less sun etc.,
Canadians spend more time - hour for hour - than the US and have a higher broadband penetration rate, so technically, it could be argued that the US should not be getting 16.7 times the web revenues that Canada gets, but somewhere like 8-10 times.
This is one very simple, but enormous reason why it is very normal for US online ad growth rates to slow down because as leader of the advertising world, the US has gotten a disproportionate share of ad dollars between 1994-2006.
This is also why, MSFT was so keen to buy AQNT, because it made a number of acquisitions in Europe and Asia. This is also why Google is a money printing machine, getting over 50% of revenues globally.
It is normal and healthy for growth in the US to slow down and trickle over to the rest of the world, anything else, would not be optimal, or healthy…
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