Media: All about ... Online advertising revenues

Will adspend continue to rocket in 2007 and beyond?

There has been no avoiding the juggernaut of online as it has gained market share over the past few years. The sector's momentum continued in 2006, with online advertising spend breaking through the £2 billion barrier, following a 41.2 per cent surge in growth.

The results of the Internet Advertising Bureau's online advertising report came as no real surprise to the market, and forecasts already predict another stellar year in 2007. These latest figures reveal that the sector has now eclipsed national newspapers for total advertising share. And, at more than half the size of the TV advertising market, it is starting to chip away chunks of spend from TV, as advertisers use online to build brands and interact with consumers.

The popularity of websites such as YouTube and MySpace is not only helping to draw audiences online, but also advertisers who want to get in on the action. But while online ad budgets are increasing, there is still a game of catch-up in process to align the share of adspend with audience numbers. An indication of even further growth for the internet advertising sector.

Guy Phillipson, the IAB's chief executive, says: "2006 was a tough 12 months for the advertising market as a whole, but once again, the internet bucked the trend. With consumers now enjoying even faster broadband and installing wireless routers in their homes, the growth of online advertising in the UK is set to continue unabated. It's still the beginning; we have the convergence of TV and mobile to look forward to. There is a lot more growth to come."

1. The big driver behind the market has been the explosion of cheap high-speed and wireless broadband, which has made it easier for audiences to spend more of their time online. In the UK, 65 per cent of the population is online and 89 per cent of at-home users are on broadband. In fact, more than ten million UK homes access the net via broadband. With the average internet user spending 26 per cent of their media day online, the internet is the second-most consumed media after TV, according to BMRB.

2. Broadband has reinvigorated online display advertising - including banners, Skyscrapers and online sponsorship - which attracted £453.7 million in spend (up by 35 per cent on the previous year). An increase in ads using rich-media technologies (graphics, animation, audio or video) helped to shift spend online, as advertisers used the internet for more creative brand advertising, as well as traditional direct response campaigns. Video has been a significant driver in the sector. According to research conducted by DynamicLogic, ad awareness is twice as high when video ads are used, compared with online display ads.

3. Search continues to account for the lion's share of the online market, increasing by 52 per cent to £1.2 billion of total online advertising spend - or a 57.8 per cent share. While the growth in search advertising was down on previous years, the sector is demonstrating healthy growth, given that it is maturing and growing off a higher base than previously. The search giant Google's revenues account for 75 per cent of the total search adspend. The company's UK revenues were £872 million last year, a 43 per cent share of the sector's total spend.

4. Online classifieds remain a consistent driver of the market, as they continue to take revenues from traditional offline sources. They recorded a 45 per cent growth, to take an 18.8 per cent share of the market, with £379 million. This is in sharp contrast with press classified advertising, which dropped by 7.8 per cent in 2006.

5. Online's share of total advertising revenues now sits at 11.4 per cent, resulting in it overtaking national newspapers for the first time. Online is now more than half the size of TV, which dropped by 4.7 per cent to £3.9 billion in 2006. The UK market is leading the world in terms of online's share of the total advertising market and is twice the global average, which ZenithOptimedia reports as 5.8 per cent.

6. Online continues to prop up UK adspend growth. While the combination of advertising across all traditional media in 2006 resulted in a 2.9 per cent year-on-year decrease (£466.1 million in revenue), the growth of online adspend boosts the entire market, resulting in an overall growth of 1.1 per cent.



- With greater numbers of people spending more time online, advertisers will need to increase their spends to match these mass audiences. The majority of major brands have yet to increase their online spends beyond 10 per cent of their overall advertising budgets. However, this is already changing.

- The popularity of websites such as YouTube and MySpace are helping advertisers reach mass audiences. However, these environments are becoming increasingly cluttered. Brands and advertisers will need to create interesting and engaging content to connect with audiences, and not just put a TV ad on YouTube.


- In one word, money. The winners will, of course, be the sites with the most market share and eyeballs. Top-ten sites such as MSN, Yahoo! and Google, along with MySpace, YouTube and Flickr, will attract the big adspends from advertisers.

- Broadcasters such as Sky, Virgin Media and Channel 4 will also benefit from the popularity of video-on-demand services and attract large revenues from advertisers.