Online advertising is starting to grow after a slight decline last year, and new types of Internet advertising are developing. A range of results and reports gives us an indication of the state of the online advertising market through 2009 and into 2010.
The overall advertising market (including TV, print and online) has declined, reflecting the economic downturn. One advertising buyer estimated that the worldwide market had declined by 10% during 2009 to $447 billion.
But online spend has not declined to significantly, and in some markets and sectors online spend has risen, as the various forms of online advertising take a greater slice of ad spend.
Magna, which analyses advertising trends, estimates that Internet advertising revenues could overtake newspaper advertising as the second largest advertising medium by the middle of the decade.
The Internet Advertising Bureau (IAB) reported a total of $22.7 billion in revenues for US online advertising revenues for the year, 3.4% down from the 2008 figure.
The UK arm of the IAB reported a slight 4.2% increase in online advertising spend in the UK, to £3.54 billion ($5.4 billion).
One reason for this increase is the strength of display advertising, now accounting for 20% of revenues. Whilst search revenues declined from 2008 to 2009, display revenues grew, up from $637.4 million in 2008 to £709 million, although these are not exact like-for-like figures. Display advertising mainly consists of banner advertising or logos displayed on another Website and hyper-linked to the advertiser’s site.
A key driver in the rise of display advertising is the growth of social networking sites.
For example, Facebook reports more than 400 million active users (up from 150 million at the start of 2009), with over 50% of them logging in at least once per day. According to the company, an average user spends 55 minutes per day on the site. That represents a lot of screen time for a large number of people, and it also represents a lot of people in Europe and the US. These people are attractive to brand advertisers who buy display ads.
As the company is privately owned, revenue numbers are not reported, but rumoured. For example, some analysts are estimating revenues of between $600million and $700 million for 2009. Facebook has invested in its back office advertising targeting applications, enabling advertisers to put their messages in front of people based on their profile data, for example.
Advertising is the main income stream for Facebook, alongside income from the sale of virtual goods. One area that is important for social networking sites is performance advertising, a subset of display ads. For example, Zynga, the developer of the hit virtual farming game, has advertised extensively to get people who are already on Facebook to sign up for the game.
‘‘Although many online games are free to start playing, players can upgrade to a higher level or invest in virtual goods that provide an enhanced gaming experience. This generates income, and game developers are therefore willing to advertise to get people playing their game – and spending money’’ said John Bosnell, Senior Analyst at Point Topic.
Search remains the most important piece of the advertising market. Google reported revenues of $6.77 billion for the first quarter of 2010, an increase of 23% compared to the same quarter in 2009. 53% of Google's revenue comes from the US. However, Google is estimated to be slightly less dominant in the US than the UK. Google probably accounts for around a third of all online ad spend in the US, compared with around 50% of online ad spend in the UK (and around 12% of all UK advertising spend). That is partly explained by the fact that search is proportionately more important in the UK than the US. There is also probably an effect of advertisers switching budget to the market leader Google and hence increasing its market share.
‘‘Search is still very important. It accounted for just under half of all online advertising revenues in 2009. And Google's strong results show that the search market looks to be recovering after a slight decline during 2009. But other advertising platforms are developing all the time. For example, faster broadband speeds mean that more people can enjoy online video. That helped online video advertising to more than double during 2009.’’ said Bosnell. ‘‘Social networking advertising continues to grow. And Twitter is also beginning to develop its advertising model, which could be a space to watch in the years to come.’’
