State of online advertising worldwide.
A growing market largely dominated by Google and/or Facebook
The online advertising market can be broken down into several segments, as can be seen in the figure below.
A mature search advertising market, more innovation in display advertising
The online market can be broken down by advertising formats, of which the two main formats are search and display, which account for over 90% of the market. Perhaps unsurprisingly, the search advertising market is dominated by Google, while the display advertising market is dominated by Facebook, although some regional variants are also strong in their particular countries, notably in China and Russia. Further, within the display advertising market is the programmatic advertising market, which is discussed in more detail later in this feature. For 2020, IDATE predicts that search advertising will reach 95 billion EUR worldwide with a CAGR of 9.0% from 2016 to 2020, while display will show higher growth with a CAGR of 12.4% for the same period, reaching 80 billion EUR in 2020.
Social, video and mobile to drive the market forward
The online advertising market can also be broken down by type of consumption, namely social, video and mobile. Social, as with display as explained above, is dominated by Facebook. Video display is more competitive, but it is in fact mainly a battle between the two giants Google and Facebook; the former through YouTube, and the latter through video posts within its network. Mobile is a similar story, with a great many players moving into mobile and/or declaring a mobile first approach, but the success of Facebook in moving their business into mobile is worthy of note. As can be seen from the figure below, Facebook has succeeded in transitioning their advertising revenues from fixed to mobile, with 77% of ad revenue coming from mobile in 2015, up from 11% in 2012. As a comparison, IDATE estimates that roughly 20% of Google's 2015 advertising revenues came from mobile advertising.
The growing importance of programmatic advertising
As the advertising market becomes increasingly digital, more of its revenues will be generated through the technologies of programmatic advertising. As a way of introduction, IDATE has clarified the main technologies used within online advertising, as follows.
Programmatic expected to account for over 50% of display advertising by 2017
In short, programmatic advertising automates the decision-making process of buying advertising space. It can be used within display advertising, also incorporating social, mobile and video advertising, and is also expanding to traditional TV advertising marketplaces. The key component provided by programmatic advertising is efficiency, making the bidding process more efficient, and therefore cheaper, by removing humans wherever possible to do the "tedious" work. This does not mean however that humans are no longer needed; in fact, programmatic advertising allows advertisers more time to concentrate on setting targets, planning sophisticated campaigns, etc. to make better use of programmatic systems.
IDATE forecasts global programmatic advertising spend to surpass 46 billion EUR by 2020, with a 19.3% CAGR from 2016 to 2020.This means that programmatic is expected to account for over 50% of display advertising by 2017, which equates to 21% of all digital advertising. By 2020, it is expected to account for 58% of display ads (which equates to 25% of all digital ads).
RTB (Real time bidding) the main technology within programmatic advertising
An important advertising technology within programmatic advertising is RTB (Real-time bidding), which remains the fastest growing advertising technology since 2012 (although its growth is slowing). In a nutshell, it is a technology which provides real-time added value to the existing automated bidding process, mainly through ad exchanges.
The process of RTB is as follows:
* A user accesses a Web page or an application (the publisher's site) that contains advertising by RTB
* When the access request is received (by the publisher), an auction is launched (by the ad network) for this advertising space and user profile (a cookie with this profile is read by the Website)
* Advertisers receive the bidding and start auctioning
* The advertiser with the highest bid wins and will be able to display their advertising on this page
IDATE predicts that the global RTB advertising market will reach 23 billion EUR by 2020, with an expected CAGR of 17.5% from 2016 to 2020. It is expected to account for 29.2% of display advertising by 2020, which equates to RTB accounting for 12.4% of online advertising in 2020.
Reliance on personal data and advertising varies according to strategy
As already mentioned earlier in this feature, Google and Facebook are the global juggernauts of digital advertising. The importance of advertising to these two players can be seen in their annual revenues, where 90% of revenues are made up of advertising. It is worth noting, however, that both Google and Facebook are trying or have tried to diversify, to not be solely reliant on their advertising revenue.
Google streamlining their non-core activities, trying to find new revenue streams
Google has restructured into "Alphabet" in order to streamline their diversified activities. Google is now a subsidiary of Alphabet, but remains in control of core activities which have already been successful (search, maps, Android, etc.). On the other hand, all of the other highly diversified activities, i.e. those which have been recording low turnover and negative operating results, have been grouped under a single "gambling on the future", and aims to regain losses and generate new revenue streams. Still, these new activities remain isolated, with little cross-referencing with data from the traditional services. As a result, at least for the time being, Alphabet remains very reliant on the advertising revenue generated through Google.
Facebook focusing (successfully) on mobile advertising following their IPO
At one stage, Facebook also aimed to become less reliant on advertising revenues. An example of this is the introduction of paid services such as Facebook Credits and Gifts in 2011, and looking at the financials it appears that such efforts were paying dividends, with their reliance on advertising revenues indeed declining (albeit still high at 85% in 2011). However, a change of strategy coinciding with the IPO in 2012 saw Facebook focusing on mobile advertising, and as a result Facebook has in fact become increasingly reliant single handedly on advertising revenues. As explained earlier, 77% of Facebook's 2015 advertising revenues came from mobile, up from a mere 11% in 2012, demonstrating the success in this transition.
Other Internet giants are less reliant on advertising, while social networks big and small are highly reliant on advertising
As for Amazon and Apple, the remaining two players making up the GAFA, (Google, Amazon, Facebook, Apple), these players do not have advertising within their core strategy.
Amazon is often referred to as the sleeping giant, as an estimated less than 1% of net sales is generated through advertising (the vast majority of sales coming through the e-commerce business). Yet, Amazon owns the largest database in actual shopping history which is unique to Amazon, and such data has massive potential for marketers, for better targeted advertising.
Apple on the other hand had launched iAd, a mobile advertising platform in 2010, only for it to be shut down in June 2016. Expensive pricing and closed model restrictions within iOS (no cross-platform ads) are thought to have been burdens to growth, but Apple's main revenues come from device sales (90% of 2015 Apple revenues came through device sales), and thus advertising remained peripheral in the large picture for Apple's business anyway.
Finally, it is the social networks such as Twitter and Instagram that are heavily reliant on advertising for revenues. Search advertising is already a mature market dominated by Google, so it is in the field of display where the main innovation is taking place, led by social networks whose core revenue stream is advertising.
IDATE DigiWorld, Montpellier
Figure 3 - Facebook's share of advertising revenue fixed vs mobile, 2012-2015 2012 11% 89% 2013 45% 55% 2014 65% 35% 2015 77% 23% Source: IDATE DigiWorld, State of Online Advertising Worldwide, September 2016 Figure 5 - Global programmatic advertising revenues (billion EUR) and their share (%) of display advertising revenues, 2014-2020 2014 11 31% 2015 16 36% 2016 23 48% 2017 30 52% 2018 36 55% 2019 41 56% 2020 46 58% programming revenue % of programmatic revenue in display ad revenue Source: IDATE DigiWorld, State of Online Advertising Worldwide, September 2016 Figure 7 - Global RTB advertising revenues (billion EUR) and their share (%) of display advertising revenues, 2014-2020 2014 6 17% 2015 9 21% 2016 12 24% 2017 15 26% 2018 19 29% 2019 21 29% 2020 23 29% programming revenue % of programmatic revenue in display ad revenue Source: IDATE DigiWorld, State of Online Advertising Worldwide, September 2016 Figure 8 - Google total and ads revenue breakdown, 2009-2015 (Million EUR) 2009 17 252 96.8% 2010 21 282 96.3% 2011 27 535 96.4% 2012 32 927 94.9% 2013 38 495 2014 44 940 90.3% 2015 50 494 89.9% Figure 9 - Facebook total and ads revenue breakdown, 2009-2015 (Million EUR) 2009 576 98.3% 2010 1408 93.6% 2011 2377 85.0% 2012 3225 84.1% 2013 5266 88.7% 2014 8662 92.2% 2015 12873 95.3%
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|Title Annotation:||Firms and Markets|
|Publication:||DigiWorld Economic Journal Communications & Strategies|
|Date:||Oct 1, 2016|
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