2008 internet advertising spend up 17% to £3.3 billion 2008

Online market share increases to 19.2% as advertisers seek accountability.

Internet the only marketing medium to experience growth in 2008.

Wednesday, 1 April 2009

Advertising expenditure on the internet proved resilient to the downturn in 2008 by growing to £3,350 millions in 2008, a 17.1% like-for-like increase on 2007, according to the bi-annual online advertising expenditure study from the Internet Advertising Bureau (IAB), the trade body for digital marketing.

The figures show that spending online increased by £540 million year-on-year as advertisers sought greater accountability and return on investment.

Total UK advertising spend fell by 3.5% in 2008 to £17.5bn. However, the research, carried out in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC), reveals that the internet grew its share to 19.2% of total UK advertising expenditure – up 3.7 percentage points on 2007 (15.5%).

In the second half of 2008 (July to December), the internet’s share of all advertising spend actually peaked at 19.8%, overtaking total Press Display (all UK newspaper and magazine advertising combined). The UK is now the world’s most advanced market for internet advertising with £1 in every £5 of media budgets spent online.

Growth in all online formats

Online display was the only display medium to grow in 2008, up 7.7% to £637.4 millions, accounting for 19% of all online advertising expenditure. The core embedded formats (e.g. banners and skyscrapers) attracted an increasing number of advertisers, buoyed by sophisticated and measurable new formats such as TV-style rich media.

The continued growth of rich media embedded formats and video is accelerating the decline of interruptive formats (pop ups), which only accounted for 0.4% of all online spend in 2008. The IAB predicts pop up advertisements will be virtually extinct by the end of the decade.

While the major portals and publishers accounted for more than half of all display advertising, ad networks – responsible for specialist, more niche sites and the ‘long tail’ of the internet – increased their market share to 44% of display expenditure (up from 40% in 2007).

Paid-for search is the advertising recession-buster as marketers look for guaranteed accountability, measurability and fast results. Paid-for search grew by 22.7% to £1986.9 millions, a 59.3% share of all online advertising. In the second half of 2008 search broke through the billion pound barrier and accounted for £1005.5 millions of online ad expenditure.

Classified growth remained healthy, up 22.2% to £715.2 millions, a share of 21.4%. Online classifieds across recruitment, property and automotive increased, as these sectors migrated from print to digital formats.

Entertainment and media becomes biggest spender in online display

For the first time in 2008, the study broke out the online display figures by sector. Throughout the year the fastest-growing display sector was Entertainment and Media. In the first half of 2008 it accounted for 10.7% of all online display advertising, and in the second leapt almost six percentage points to 16.3%. This meant that it overtook other sectors to be the highest spender in display at the year-end, followed by technology and finance. Retail also increased its spend significantly, rising from 6.3% in the first half of 2008 to 9.1% in the second half – a leap from eighth to fifth place.

When all formats are combined – search, classifieds and display – Recruitment continues as the leading sector, accounting for 23.8% of all online advertising spend, followed by Automotive (13.5%), Technology (11.2%), Property (9.7%) and Finance (7.6%).

Guy Phillipson, chief executive of the IAB, said: "These are really tough times and advertising budgets are being slashed. More than ever, marketers have to demonstrate a clear return on their media investment – and accountability is online's trump card. UK advertisers have become digital savvy and they're now using rich media, ad networks and search in intelligent ways to achieve their sales and brand targets. This shift to digital has propelled online to become a 20% medium."

Phil Stokes, UK head of entertainment & media at PricewaterhouseCoopers, said: “As audiences continue to migrate to an online environment for commerce, information, social interaction and entertainment, advertisers are following in ever greater numbers. The growth in broadband household penetration is allowing a far richer mix of video entertainment and advertising to create a ‘near-TV’ feel for mass audiences online and advertisers can see new and innovative ways to build and sustain brands with targeted advertising.”

Key drivers for growth

Advertising networks boost internet ‘long tail’. The rapid rise of advertising networks (now worth 44% of total online display expenditure) as efficient, streamlined businesses selling display advertising for the internet’s ‘long tail’ are opening up the internet to more advertisers, and providing even greater return on investment.

Accountability is online advertising’s trump card. In challenging times marketers look to established online advertising formats such as paid-for search, which deliver measurable returns.

Growing online audience stimulates advertising. There are 34.7 million people now online in the UK. 23.6 million people access the internet every day, with 15.3 million using the internet more than once a day (source: NRS UKOM Jul-Dec 2008).

The internet has come into its own as an entertainment medium. As a result of cheap, fast internet access, whether by fixed line broadband, fast wireless or 3G, the internet, once the home of online shopping and searching, is as important an entertainment medium as an X-Box or Nintendo Wii. Social media, music and movie downloads, catch up TV, online news and magazines make the internet a one-stop shop and reinforce the cliché of ‘staying in is the new going out’.

Summary of ad spend in 2007

Online advertising grew from being the smallest medium in 2002 to the third largest in 2007, accounting for £2,812.6 millions. This represented a 38% year-on-year increase on 2006, and a market share of 15.3% (up from 11.4% in 2006).

For more information, journalists should contact:

• Amy Kean at IAB UK on 07739 372042 or amy@iabuk.net

• Mark Terry-Lush at IAB UK on 07740 432 112 or mark@renegademedia.net

• Anna White at PricewaterhouseCoopers LLP on 020 7804 9719 or anna.r.white@uk.pwc.com

Notes to editors:

Background to the study

• The IAB has been working with PricewaterhouseCoopers since 1997 to survey the value of the online advertising market.

• PwC works with local IABs in America, Australia, Spain and with IAB Europe to assess the size of the interactive media markets.

• These figures have become the industry standard for measuring advertising spend and in the UK are now used by the Advertising Association.

• 118 companies have participated in the survey representing thousands of websites.

• Reported figures are not adjusted to account for other organisations that have not participated.

• Total advertising revenue is reported on a gross basis.

• The figures are drawn up on the basis of site declaration. They cover thousands of UK websites, but by no means all.