Thursday, April 5, 2007

Web advertising growth slows?

 A version of this piece was published in Marketing in 2007

So the internet advertising market is now worth over £2bn, and champagne corks have been popping all over Clarkenwell.  The publication of the IAB’s survey of internet adspend has attracted vast amounts of press coverage trumpeting both the overtaking of national press, and the inclement weather faced by other media.

But all this brouhaha has missed out on two important conclusions that can be drawn from the survey – that online market growth is slowing, and that the survey massively underestimates the true scale of the business.

Recent years saw growth in internet advertising peak in 2003 when the market increased by 136%.  The following two years saw growth of 77% and 66% respectively, before 2006’s recently reported 41% uptick. 

So is online marketing a busted flush?

What we’re seeing is a sign of the market maturing.  Each year growth is based on a higher figure, so whilst the percentage growth may be declining we’re still seeing increasing amounts of actual money being added to the market each year.  On top of this, we’re going to see continued levels of substantial growth, with most observers expecting around 30% for 2007. 

And as the market matures in scale terms, it’s continuing to mature in practice too.  Techniques for online marketing have become extremely complex and specialised, and the gap between the advanced practitioner and the beginner is creating real barriers to entry – it’s very tough to develop the skills, commercial arrangements, market knowledge and technologies from scratch in a way that is competitive with the market leaders.

So the undignified scramble we’ve seen over the past couple of years as every traditional agency puts “digital at the heart of their business” is going to leave many disappointed, as they discover that rather than being paved with gold, it’s hard work and genuine innovation that’s keeping digital growing.  Being competitive in this space has proved to be substantially more difficult than in traditional media, where if you couldn’t match the rates, you could at least reduce your fees to buy your way into a market. 

At least as interesting as the growth story though, is the invisible market value.  Just as with an iceberg, the largest part of it is the bit you don’t see.  These figures measure adspend, and ignore the value-add from affiliates, CRM and partnerships, website build, viral marketing and search engine optimisation. 

As you’ll know from your inbox, CRM is a huge area of activity on the internet, with email a vital tool in the armoury of marketers.  It’s a big part of marketing effort, but it doesn’t cost anything in media terms.  Similarly, distribution partnerships, where online stores are opened in other peoples’ websites (a little like a concession in a department store) are often struck on a revenue-share basis – this means they don’t turn up in adspend figures but are nevertheless a substantial income source for media owners.  And as paid-for search gets more expensive, more emphasis is being placed on SEO – the dark art where coders attempt to configure a website to rank highly in a search engine’s ‘natural’ listings – and again, this isn’t reflected in the IAB figures.  Techniques like these form a huge part of marketing in the online space – and none turn up in the IAB’s survey.

And this is where the wake-up call for us all lies.

We’re all obsessing about how much advertising money goes to the internet, and in doing so we’re missing the real impact of the web – to blur the lines between advertising, product, distribution and brand.  Figures like the IAB’s are interesting, but they tell only a small part of a story that’s shifting its focus from media spend to commercial value.

So by all means celebrate the crossing of a threshold in online’s adspend scale.  But don’t imagine this is where it ends.  There’s a much bigger game being played out online in marketing, and advertising is just one small part of it.

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