Dot Boom - The Rapid Growth of Internet Advertising
Around the world online advertising continues to grow with more and more of the marketing spend moving online.
In the UK, the Internet Advertising Bureau (IAB) recently showed that the online advertising market grew by 66% in 2005 to A$3.2 billion (£1.4 billion). (See: http://www.iabuk.net/en/1/na2006q1adspend2005.html) It was Search and Directories that recorded the greatest growth.
The story is the same in Australia, the Audit Bureau of Circulation (ABC) recently reported that the Australian online advertising market was A$620 million in 2005. This was a 60% growth over A$388 million spend in 2004.
The ABC splits the online advertising market into 3 segments. Search and Directories captured 36% of the advertising spend, Online Classifieds with 33% of the online spend and General Display with 31% of the online spend. The big winner in Australia was Search and Directories advertising that grew by 73% over the 12 months. Classifieds and General grew by 56% and 51% respectively.
www.realestate.com.au is also experiencing similar levels of growth. Between 2004 and 2005, revenues grew by 62% from A$26 million to A$43 million.
In the US, the online advertising market was estimated to be A$17.6 billion (US$12.5 billion) in 2005. This was a 30% growth over the 2004 numbers. (See: http://www.iab.net/news/pr_2006_03_01.asp)
Where is the spend coming from?
So where is the money coming from? Is it just a case of advertisers spending more of their overall budgets or are they redirecting the marketing spend from other media?
Figures released recently by the Advertising Association in the UK (See: http://www.adassoc.org.uk/News_Release_170306.pdf) show that there is a continued migration of advertising spend from traditional media to the online world. Over the last 12 months, the total UK advertising industry grew by only 2.1% to GBP 15.86 billion in 2005.
Online was the big winner with a whopping 73% increase in online advertising expenditure over 2004 numbers.
In 2005, they estimate that GBP 1.13 billion was spent online with classified advertising receiving GBP 748 million and display advertising receiving GBP 383 million.
Online advertising growth seriously outstripped all other media with the next fastest growing medium being outdoor advertising that grew at only 5.8%.
The big losers were radio which shrank by 4.5%, regional newspapers which shrank by 4.4% and direct mail that shrank by 3.9%.
Why are marketers redirecting spend online?
Marketers are flocking to online advertising for the clear and simple reason that it drives high volumes of results for the advertiser at rates that no other medium can match.
A recent study by the Internet Advertising Bureau in the US (See: http://www.iab.net/news/pr_2006_03_13_b.asp) looked at the effectiveness of online advertising.
Some of the results are astonishing. In the automotive industry, if a car dealer advertised on cars.com only, they would pay around US$68 in advertising to sell one car. However, across the complete US automotive industry, the average advertising cost to sell a car was a whopping US$493 in advertising. Another way to view it is that by advertising online only, the internet savvy car deal should be able to sell around 7 times as many cars as the traditional car dealer for the same level of marketing spend.
Conclusion
The growth of internet advertising and the movement of spend from traditional media to online will create risks and opportunities for advertisers. For the traditional market leader, they must rapidly understand and leverage the internet to their advantage. If they don’t, the small, nimbler competitor is likely to capture more and more of the market thus putting pressure on the finances of the traditional player and forcing them to spend more and more just to maintain market share.
