In the last twelve months the digital economy here in Zagreb has been transformed. It’s still a small industry, but the early enthusiasm of the industry is now being matched by strong budgets among the firms who have been experimenting with digital channels. Audiences have swelled, with the falling costs of broadband driving audience growth and allowing more people getting online at home, as well as an unstoppable increase in the use of the web and email at work. Research firms have put in place the systems to track the growth, and this data is fuelling market confidence, as well as providing accurate reporting and insights on the nature of change in Croatian media.

And that change is happening fast. Concentrated among the younger generation and the professional office workers, web and email access is becoming the ‘must have’ toolkit. It’s the same pattern we saw in Estonia and Slovenia a few years earlier, and that the mighty Polish economy has embraced. It starts with curiosity, then the gradual development of simple websites, the upweighting of their content and links into the business, then the role of search to acquire customers and email to retain them. Next comes online advertising formats, and further thinking about how the web could drive more sales. Typically only a few companies get it right first time round, but in the young digital market the effects of getting it right are amplified.

Software manufacturer Polar places most of its marketing activity into the internet, allowing them to compete in markets well beyond the country’s boundaries, and the reach of a field sales force. Tourism portal Adriatica.net has become so successful in marketing the region that it’s online video and online shopping has captured customer imaginations on a scale way beyond the wildest expectations of the classic travel industry, that still clings to highstreet shops as the only way to sell and sees the web as a threat to defend from rather than the biggest marketing opportunity in the history of the sector.

Experiences are polarised, and so are expectations. Many classic advertising agencies still don’t recommend the web as a media channel at all, lacking the revenue models for it make sense for the business. Likewise their clients are not encouraged to move to the web because most don’t appreciate this is where audiences are already changing their focus to.

Web advertising may still be a tiny component of the media mix, but the trend in Croatia is clear. A year ago, the web was hardly visible as a marketing channel, taking only 0.3% of advertising spend, and talking with the directors of Croatia’s leading online sites, it’s clear that every sale was an uphill struggle. But now the web is 0.7% and should cross the 1% threshold early this year. Media owners are reporting strong revenue growth that implies the rate of change is accelerating, and with many multinational firms now investing heavily, the quality of online products and services is leaping.

As economies across the Balkan and Central & Eastern European region start to embrace web marketing as a mainstream communication tool, the sector is entering into a period of rapid transition. That pace of change will be uncomfortable for many, especially marketers and agencies anchored in classic media and unwilling or unenthusiastic about exploring the new. For the digital enthusiasts this presents an exceptional moment of opportunity, and one that has echoes of experiences ten years ago in the UK and other lead markets that continue to act as a laboratory for the future of the digital economy in Europe.

Maybe the future for Croatia is less opaque. It’s reasonable to expect that by the end of 2009 online adspend will be well over 2% of the total ad industry. A few firms will be placing 20% or more into the web, and their experiences will be copied by competitors. In the heated sectors of tourism and financial services the innovation will be faster and the role of search engines will be particularly powerful. Online spend is only one measure of the development of a digital economy, but if growth stays between 70% and 100% year on year, then Croatia will enjoy the leapfrog effect of getting digital marketing right first time by learning from the experiences of other countries and not making those mistakes here in Zagreb. It may still be a small industry, but one at the point of transformation.