UK marketers spent £1.7 billion during first half of 2008 to increase online market share to 19%. Search, classifieds, rich media and video boost total advertising market. Total advertising market would have fallen 4.6% without the internet’s growth.

Tuesday, 7 October 2008

Despite tough trading conditions, internet advertising expenditure grew to £1,682.5 million in the first half of 2008, a 21% year-on-year like-for-like increase, according to the latest online adspend figures from the Internet Advertising Bureau (IAB) the trade body for digital marketing. The research was carried out in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC).

Marketers demonstrated overwhelming confidence in online advertising at a time when all major advertising mediums – TV, press, outdoor and radio – experienced falls in expenditure. The total advertising market was £8982.5 million, down 0.7% year-on-year, during the period January to June 2008. The advertising market would have experienced a 4.6% decline without the internet’s growth.

In real terms internet advertising added £348.2 million to its bottom line when compared with the same period in 2007. Online exceeded expectations to increase its market share by four points to 18.7%, only 0.6% behind total press display (19.3%) and 3% behind TV (21.7%).

All formats experience better than expected growth

Paid-for search continues to lead the way, growing by 28% year-on-year and was worth £981 million in the first half of 2008, with its market share marginally up to 58.3% of total online advertising (57.8% in first half of 2007). Search has become a staple on the media schedule and is increasingly integrated into traditional and online advertising campaigns.

Total internet display advertising spend rose 16.3% year-on-year to £333.8 million. This was boosted by a 36.6% increase in spending on ‘embedded’ formats such as banners, rich media and video. Internet display ads are still the only major display medium to be growing so this increase reflects confidence in its ability to engage consumers, build brands and drive sales.

The majority of online display ad spend is still via major portals and online publishers, but sales networks – representing thousands of smaller sites – have increased their volumes and accounted for 41% of all display expenditure. Sales houses and networks are growing the ‘long tail’ of internet advertising – smaller and niche websites – and offer advertisers a streamlined ‘quick sell’ for direct response campaigns.

Technology, finance and entertainment & media top categories

An analysis of display advertising revenues in terms of sector split reveals that Technology is the top category with a 17.3% market share, followed by Finance at 11.9%, Entertainment & Media at 10.7% and Recruitment at 9.9%.

Classifieds grew by 30.2% year-on-year to £361.6 million as recruitment, property, automotive and small ads continued their migration to the internet from print classifieds, which declined 10% year-on-year.

Guy Phillipson, chief executive officer of the IAB UK, said: “Online is not immune from the economic downturn, but while other sectors see falls in expenditure the internet is still experiencing an incredible increase and is propping up the entire advertising market.

“The growth in internet advertising spend is beating all expectations as advertisers look to maximise their budgets, and take advantage of new display advertising formats such as video. They are also increasing their investment in paid-for search marketing because it delivers measurable returns on investment.”

Paul Pilkington, director, entertainment and media practice, PricewaterhouseCoopers LLP, said: “Overall, we believe online will perform better than other media during the downturn, but expect to see differences in performance across the various online segments."

Key drivers for growth

Advertising networks boost long tail. The rapid rise of advertising networks as efficient, streamlined warehouses that sell display advertising to the internet’s ‘long tail’ are opening up the internet to more advertisers.

Online audience. There are 31.6 million people now online in the UK (Source: BMRB Q2 2008). The online population now reflects the demographic make-up of the UK as a whole, with a 52%/48% male/female split. 21% of internet users are 25 to 34 years and at the other end of the spectrum, the over 50s now represent 30% of total time spend online.

3G, wireless and cheap laptops. 3G ‘dongles’, wireless and laptops are no longer a luxury item or confined to business. Mobile network ‘3’ sells more 3G dongles than mobile phones, T-Mobile offers a £10 per month 3G dongle, which coupled with a powerful cheap laptop, perhaps given away free by AOL or Carphone Warehouse, substitutes for a traditional broadband contract on a fixed-based PC. In Q1 2008, 6% of adults used mobile broadband and in the five months from February 2008, 511,000 mobile broadband connections were sold by the UK’s five mobile network operators. 75% of those with access to mobile broadband use it at home, 18% do so at work and 27% while elsewhere/on the move. The number of 3G connections (including mobile broadband connections) in the UK increased by 60% during 2007 to reach 12.5 million by the end of the year, amounting to 17% of all mobile connections (source: Ofcom). More machines mean more people, more eyeballs, more impressions, and so more advertising.

Broadband commoditised. Faster, cheaper broadband, with deals as low as £4.50 per month from Virgin Media are attracting more people online. The proportion of homes taking broadband services grew to 58% by Q1 2008, a rise of six percentage points on a year earlier. By the end of 2007, 58% of UK households had a broadband connection, up from 52% a year previously and from 41% two years ago. 70% of UK broadband users have more than 2mb speed (BMRB Internet Monitor, May 2008). This compares to 47% in May 2007.

Catch up TV. Launch of services such as BBC iPlayer and Channel 4’s 4oD are breaking the barrier between video entertainment and the internet as a communications or shopping tool. The Beijing Olympics was the tipping point for BBC iPlayer with a broader demographic profile using the online service. Consumers are responding to this increased supply. Twenty-seven per cent of those aged 15-24 claim to use the internet for ‘watching TV programmes’ in 2008, up by 17 percentage points in 12 months. 45% used it for ‘watching video clips/webcasts’, also up by 18 percentage points over the same period.

Social networking websites. Social media continues to have a massive impact on the market, especially as an audience driver. In the first half of 2008 ad spend for this area was relatively low and coming off a small base, yet looks set to grow steadily in the coming years. CPM values for user-generated content are lower in this sector and they are generally bought through networks. However, the premium channels such as MySpace Music and MySpace Film are sold at a higher CPM rate as they do not contain any form of user-generated content.

Summary of ad spend during first half of 2007
During the first half of 2007 online advertising spend was £1.3 billion and the medium grew by 41.3% from £917.2 year-on-year. During this period online overtook direct mail.

For more information about the IAB/PWC Adspend study please contact Amy Kean.