Thursday, April 3, 2008

We haven't yet scratched the surface of digital

A version of this piece was published in Marketing in 2008

About this time of year, it’s traditional to gasp in amazement as online continues to absorb a still greater share of the UK’s advertising spend. The Internet Advertising Bureau announce another notch on their bedpost, analysts start trying to identify the winners and losers, and the advertising community continues to polarise into those who are seizing the opportunity with both hands, and those who are sticking their fingers in their ears, closing their eyes and humming loudly to themselves.

In the US, where internet advertising grew 18.9% in 2007 (the overall ad market grew 0.6%), publishers are looking to the UK to understand our experience here. Share of total advertising spend here is double what it is in the US, and relative to population, the UK online advertising market is the biggest in the world.

So given the strong base built over the past five years, it’s all the more remarkable that the new figures published this week by the IAB have shown yet another substantial rise in online budgets.

The market grew by 38% in 2007, only slightly behind its 2006 growth of 41%. But this hides the fact that in volume terms the market actually expanded faster – by £797m in 2007 compared to £649m in 2006.

Search held its share of online, increasing 38%, and the IAB’s numbers show that market to have reached £1.6bn. Google makes up 79% of that, their growth surging ahead of the market and continuing to consolidate the lead that they’ve successfully established in Europe.

The big success story is display advertising, which grew 31% in the year – boosted by the continued boom in ecommerce.

The online market has continued to confound the ability of the industry’s Nostradamus wannabees – with both the major media agencies and the big analysts once again significantly underestimating the real rate of growth.

So what’s driving this unparalleled expansion?

It’s easy to look at the micro here. Automotive up, recruitment up, FMCG up. But these are symptoms rather than causes of this extraordinary growth – there are two, more fundamental, factors at play.

First, internet advertising is a global market.

Whereas technologies (HDTV, DAB radio, colour newsprint) in traditional media tend to emerge in single geographies and expand on a territory by territory basis, internet technologies can emerge in any place in the world, and spread overnight across the planet.

This applies as much to applications (skype, BitTorrent) as it does to media properties (YouTube, Craigslist) and hybrids of the two (Facebook) – and it means that the internet market has a global mindset.

It’s often assumed that internet companies regard traditional media businesses as old-fashioned. In fact, they often regard them as parochial – slower, strategically cumbersome and competitively less challenged.

And this is the second factor. This openness, this bigger worldview has led to a hypercompetitive environment, where evolution and revolution happen before our eyes. It’s a business that’s attracted ambitious, creative and driven people whose interest is sparked by the disruptive effect of their businesses – finding new ways to do things, often in ways that firstly undermine and then frontally assault the status quo.

eBay didn’t copy Sothebys, Google didn’t copy Yellow Pages, Craigslist didn’t copy Loot.

So we shouldn’t expect incremental change.

The internet media market has challenged the status quo not least because it is more than just an advertising market. It’s a distribution medium, a channel between people and a consumer research lab, and those who model its revenue potential on the basis of simple advertising end up looking merely parochial.

UK marketers are leading the world in their adoption of digital, both as a marketing channel and as a channel to market. But online advertising reaching £2.8bn in 2007 is a symptom of something much bigger – an indication that perhaps we still haven’t yet really scratched the surface.

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