The US Internet Advertising Landscape

The US Internet Advertising Landscape: Part 1- Overview and Top Level Opportunities

In my quest to find a single report that would teach me all about Internet advertising, I ended up creating one myself by piecing together disparate pieces of data from many sources. As the saying goes, the journey was its own reward in this case.

I will share what I learned in the past few days, in a series of articles, starting with this one.

2008 US Ad Spending by Select Media and Formats

US Internet Advertising Market Segmentation

One of the things I realized very quickly is that lay definitions of Internet advertising include only marketing messages that are delivered on web pages, the usual suspects being text ads for search results pages and banner/text ads on content pages. I suspect marketers don’t really think that way anymore. Rather, a marketer’s problem is really about achieving awareness and/or conversions in the most cost-efficient manner using all available channels that have mindshare with consumers, including:

• Web:

• Search
• Display
• Rich Media: really annoying formats such as interstitials, eyeblasters, foldovers etc
• Video: Pre-roll, In-stream etc
• Classifieds
• Lead Generation
• Sponsorships, such as microsites, sponsored pages, take overs etc

• Mobile

• Search
• Display: Banners and Video
• SMS/Text Messaging Ads

• Online Games

• Digital Signage: an emerging format for messaging at retail and point of service locations (e.g. waiting areas at dentist offices). I will explain why it belongs here below.

• Email marketing
  

The total market for internet advertising, when defined this way, is expected to about $25B in 2008.

Top-Level Market Opportunities

There are obvious opportunities in the top left quadrant in the accompanying figure. In particular:

• Web video advertising segment is in a great position with demand out-stripping supply, largely because most top publishers have not adopted video content as rapidly as advertisers want them to. It should be no surprise that web video advertising is commanding CPMs that average $45 or more (source: Bain/IAB study). While video content per se is not a problem for Youtube, they are focusing a lot on delivering premium video and brand-sponsored channels, which are much more desirable for advertisers than user-generated videos. Youtube is beginning to offer video advertising in a variety of formats, including in-stream, pre-roll and stand alone video ad units in its premium content, featured user-generated videos and brand-sponsored channels.
• Mobile advertising is on the rise. In particular, with the rising adoption of smart phones, we are going to see pretty much the full range of ad formats as the web (banner, video, search etc) on these devices. Text messaging based ads, while they sound boring, can be used creatively, as I will show in a future article.
• Digital signage: an emerging format for messaging at retail and point of service locations (e.g. waiting areas at dentist offices). At the moment, its efficacy in terms of awareness is not well documented. It also lacks an easily-tracked scheme for call to action. Nonetheless, I think this medium can be used synergistically with other formats listed above, even though the industry is not currently thinking this way. In particular, the call to action aspect of digital signage is open for creative new approaches that will lend themselves for easy tracking of conversions.
• Email- marketing, appears to be still growing, though not as rapidly as other media/formats in this quadrant
  

In the top right quadrant, we have the usual suspects in terms of search and display advertising. With respect to display advertising, growth will come from at least these sources:

• Ad networks which have shown a lot of promise with respect to monetizing inventory that would other be unsold for large publishers. Estimates of unsold inventory range as high as 50% for some large publishers.
• A special flavor of ad networks, ad exchanges (e.g. Right Media, Microsoft AdECN), with their promise of eBay style auction-based pricing for inventory, will allow publishers to maximize the value of unsold inventory more than they can do today with old-school ad networks.
• The increasing volume of tail publishing via blogs- these are not monetized at all. Some emerging ad networks are focusing on them, such as Federated Media, Glam Media and so on.
• Social media destinations such as Facebook, Flickr etc, which are largely untapped at this time. The current challenge appears to be the rock-bottom prices for impressions on these networks (e.g. $0.25 CPM, Source: Pubmatic), which ideally could be addressed by more targeting. This is a subject for a different article.

In the bottom right quadrant, web classifieds, while they appear to be shrinking, are actually ripe for innovation. Historically, web classifieds have had one of the best track records in terms of conversion and ROI. See IAB studies on this topic, where it is shown that classifieds have upwards of 10% conversion rates if you count both online and offline actions driven by them. In a different article, I will argue how this segment can be re-energized by leveraging their ability to target intent in new ways- after all, people looking at classifieds are actually really, really looking for something!

Web Sponsorships, in the bottom right quadrant, while they appear to be shrinking, are again an area ripe for creative approaches. I will point to Youtube’s use of branded/sponsored channels and Facebook Pages as emerging ways of energizing this category beyond the current focus on sponsored sites for premium brands.

Read Part 2