How long can the UK dominate the European digital landscape?

IAB Europe research shows the UK and Germany standing out as the market leaders across the continent, but is it possible for the other nations to narrow the gap?

How long can the UK dominate the European digital landscape?

UK digital advertising market leads the way in Europe

In 2009, the top three European digital advertising markets by value, the UK, France and Germany, accounted for 60% of the €14.7bn spent on online advertising in Europe.

The UK alone accounted for 27% of this spend last year, with a total of €4.01bn. How do we explain why the UK market makes up the lion’s share of Europe’s digital advertising market, and is this dominance likely to continue?

IAB Europe’s annual AdEx report benchmarks the online advertising spend in all member countries, using data supplied by the national IABs.

This year's study covers 24 European territories. With four years of data behind us, we are able to track market developments and explain what this means for digital advertising markets.

Industry growth in an economic downturn

Previous years had seen explosive growth in the digital advertising industry across Europe, with rates of 40% in 2007 and 20% in 2008. Last year was of course a notoriously difficult year for the advertising industry across the region.

The good news is that the European digital market outperformed the advertising industry as a whole by delivering 4.5% growth, and every mature digital advertising market managed a small growth in these tough conditions. This illustrates the adaptability of digital as an advertising medium and the secure position that it now commands in the media mix.

At 4%, the UK’s growth rate from 2008 to 2009 is slightly below the European average, but in line with other mature markets – Norway 1%, France, Denmark and Netherlands at 2% and Germany 5%. It was the smaller, less mature markets that were coming from a smaller base that were showing the strongest growth, with Greece at 49%, Austria 14% and Poland 13%.

The value of the internet user

While there are other countries with higher broadband penetration rates than the UK’s 73% – (Netherlands (85%), Norway (83%), Sweden (82%) and Finland (75%) – according to IAB Europe/InSites MCDC 2009), the online populations are in proportion to their overall populations, and are therefore fairly small.

While the Netherlands has 11.4 million internet users and Norway 3.1 million, the UK has 36.6 million, second only in absolute numbers to Germany with 48.6 million. The sheer number of internet users in these two markets is in their favour, as it encourages advertisers to experiment with and invest in digital platforms.

Market share

Of course, market size only tells one side of the story. Putting digital advertising spend in the context of the entire advertising market is a valuable tool for benchmarking a country’s digital advertising maturity.

With digital taking a 27% share of all that is spent on advertising in the UK (using WARC valuation for main media only – TV, newspapers, magazines, cinema, radio and outdoor) the UK is shown to be the most mature market in Europe, closely followed by the Scandinavian markets Denmark (26%) Norway (23%). The other two "giant" markets, those of Germany and France, lie in 6th and 7th position, with 18% and 15% respectively.

The secret of search

The UK market has always been search heavy when compared to other European markets. Of the €6.7bn spent on paid for search in Europe in 2009, the UK spend accounted for 36%. To put it another way, the percentage of total digital ad spend that went on search in Europe as a whole in 2009 was 46%, whereas in the UK it was 61%.

When IAB Europe first started collecting this data back in 2006, search accounted for 45% of total European online ad spend, significantly lower than the 58% spent on search in the UK. The share of search was watched closely to see if other countries’ search ratios would develop in a similar way to that of the UK.

However, despite the fact that Europe’s total spend on search increased from €3.68 billion in 2006 to €5.6bn in 2008, the following years saw the share of the search format decline very slightly, to 44% in 2007 and 43% in 2008, as investment in other formats grew at an even higher rate. Only in 2009 did we see the share of search in Europe rise, from 43% to 46%, as tough conditions in the advertising market made search seem a safe bet for advertisers.

Judging by these trends we can assume that search as a driver of online advertising spend is still primarily a UK phenomenon, and that the search- dominant spend model will remain unique to the UK for some time to come.

The heavy spend on search in the UK is driven at both ends of the advertising market. Big advertisers are more likely to invest in search as a branding tool in the UK than elsewhere in Europe. At the same time, the phenomenal growth of e-commerce has given the UK a wealth of SMEs for whom search is a very economical advertising solution, making the investment from the "long tail" in the UK extremely valuable.

Display rises to the challenge

2009 was a notoriously difficult year for the advertising industry across the region, and the challenges were felt keenly by the display sector which saw its European growth rate drop from 15% in 2008, to 0.3% in 2009.

While the largest display market in Europe, Germany, managed to achieve 4% growth in 2009 to €994m, the UK in second place was not alone among the more mature markets in seeing like-for-like investment in display decline slightly during this period.

The UK and Sweden both saw their display markets decline by 5%, France by 6% and Norway by 11%. Early indications for 2010 show that this slowdown is to be short-lived across the developed markets, and that it does not indicate a long-term trend for display in the UK, but rather a momentary reaction to the economic circumstances of the period.

The long-term view

For the mature markets such as the UK and Scandinavian countries, the growth in the digital advertising market will be driven by the new opportunities that are still being understood by the advertiser – mobile, internet TV, video and OBA.

While it is unlikely that these markets will lose their status as Europe’s most evolved in the near future, it is worth considering that the greatest potential for growth is currently to be found in the middle Europe markets, where there is still the likelihood of significant numbers of consumers moving online in the next few years – France, Poland, Spain and Italy.

Should this growth be realised, we would see a closing of the gap between the digital advertising spends of those European giants, UK and Germany, and their neighbours. Once that is accomplished, markets will be less concerned by how much is being spent online, than by how the spend is distributed across the digital formats.

Catherine Borrel, head of research, IAB Europe

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