Our latest Digital Insight Report looks at the US market where online adspend has surpassed $5bn for the second quarter this year. The continued rate of growth in the world's largest online ad market is increasingly at the expense of other traditional media and we expect the coming year to be the point at which TV advertising budgets are switched online as advertisers follow their audiences.

Every year we comment on the growth of the online advertising market in the US, the related restructuring in the media industry, and the key trends in this segment of the digital networked economy. This email has the key highlights and you can download the Digital Insight Report at the end of the links. Let me know if it's useful, and if you'd like to talk more about what it means, or if you have a comment to add for one of our discussions, then just mail me back.

Danny Meadows-Klue
Founder and Chief Executive
Digital Strategy Consulting

Speed read

• US online adspend has crossed a record $5bn a quarter for the second time at $5.2bn
• The first nine months of 2007 totalled $15.2bn, nearly 26% up from the same period in 2006
• The world's largest online ad market still enjoying largest annual growth on real terms
• Growth rate still over 25%
• Digital Strategy's forecast for the full year is remains at $22.5bn
• The growth in online is offset by dramatic changes in the market share of other channels as budgets are drained from classic media to fuel digital marketing
• Search engine advertising continues to dominate, but all online formats are growing, with new waves of brand advertising entering the industry

Net breaks $5bn for second quarter running
The latest numbers for the US from PricewaterhouseCoopers (PwC) and the IAB confirm that the world's largest online ad market is still enjoying the largest annual growth in real terms. Spend surged ahead by 25.3%, crossing the $5bn mark for the second quarter in this year.

US Internet advertising revenues for the first nine months of 2007 totalled $15.2 billion, setting yet another new record, an almost 26 % increase on the same period in of 2006. Spend was $5.2bn in the third quarter of 2007.

US IAB President Randall Rothenberg noted that "the continued robust growth of the industry indicates that marketers increasingly understand and appreciate the benefits of interactive advertising," adding that "Marketers large and small have come to accept digital media as the fulcrum of any marketing strategy."

The growth was propelled not just by search engines (which increased their share of online adspend to 41%) but also by the wider consumer advertising sector. Classifieds continued to swell, but they did lose share within online to the Rich Media and Video formats which now account for 8% of all online advertising.

Quarterly $ revenue growth comparisons - 2000-2007 year to date

Quarterly $ revenue growth comparisons  - 2000-2007 year to date

2007 third-quarter revenues at $5.2bn recorded the highest quarterly revenue total since reporting began in 1996, and marked the second time in a row that quarterly revenues exceeded $5.0 billion.

Source: PricewaterhouseCoopers / Internet Advertising Bureau

Topline growth hides turmoil
Overall the US ad market is faring well, but as in the UK this disguises the dramatic churn and channel switching between media that has made it the most turbulent and unpleasant of times for many media owners. The US press classified sector continues to suffer the agonising pain of the CraigsList free-to-air model, the rise of the Google pay-per-click leads generation model has cut deep, and eBay has replaced the garage sale market.

As in Europe, the pay for results classified engines such as Oodle will encroach further into the yields (if not the volumes) of US regional and local press, while disintermediation is effectively letting even small advertisers deal direct. As IP-based geotargeting grows, barriers that have prevented small business advertising from moving to the web will melt away, strengthening the traditional and mobile web platforms at the expense of press. The small business engines within eBay will rise in strength even further, placing Amazon and eBay in exactly the same space in the US domestic market.

Many consumer brands we spoke to are now talking frankly about switching campaign budgets to the web as TV's audience reach stumbles but, worse, perceived ad effectiveness falls even faster. Media fragmentation, marketing savvy audiences, and massive changes in consumer behaviour are all impacting faster in the US than most countries and it's all much faster than most classic media groups can hope to adapt. This paves the way for polarisation in both corporate profits and digital audiences. As Digital has been predicting since 2003, when the shake-out comes it will be larger and more brutal than most classic media (or their shareholders predict).

Industry revenue concentration remains high

Online advertising continues to remain concentrated with the ten leading ad-selling companies, which accounted for 70 percent of total revenues in the second quarter of 2007, down slightly from 71 percent reported for the second quarter of 2006.

Companies ranked 11th to 25th accounted for 12 percent of revenues for the second quarter of 2007, while companies ranked 26th to 50th accounted for 9 percent in the second quarter of 2007.

Source: PricewaterhouseCoopers / Internet Advertising Bureau

Perspectives and commentary for firms building business in the digital networked economy

Massive social and technical change demands a new type of blended, connected marketing
It's time for a change in marketing. Many classic marketing channels continue, but a new type of blended, connected marketing is called for.
Continue reading "Massive social and technical change demands a new type of blended, connected marketing" »

Copyright: challenges, models, and getting up to speed with the tensions
Last week in a digital management coaching workshop, a senior marketer hit a familiar legal dilemma: "Can I use things I don't have copyright to?" All I could reply was the rather unhelpful "get a lawyer".
Continue reading "Copyright: challenges, models, and getting up to speed with the tensions" »

Marketing to the Facebook generation: Web 2.0 marketing techniques and approaches
When audiences change, marketing has to change. The problem with marketing through the web is that there's never any let up in the insane pace of change since it kicked off at the start of the nineties, so while most marketers are yet to get up to speed with the last digital era of techniques, you can be sure that a new paradigm is already rippling out from deep in the servers of a website you've never even heard of.
Continue reading "Marketing to the Facebook generation: Web 2.0 marketing techniques and approaches" »

Scattered postings from one person's journey on the road to the digital networked society


What a wonderful Wi-Fi world it would B (T)
Another tipping point now in sight: this time it's the Wi-Fi clouds we've been craving for. Sitting in a café yesterday without a single unlocked or public Wi-Fi point made me realise how far we still are from actually having ubiquitous wireless access.
Read more »

Digital publishing strategies pay off
Innovation among classic media got a deserved pat on the back this week at the online publishers' awards. Britain's first online newspaper moved back on top, walking away with consumer publication of the year, after an unprecedented wave of innovation, including the creation of Telegraph Television, a restructured newsroom, complete relocation and a string of new launches.
Read more »

Google stock: breaking the $600 mark
Another tiny moment in the world's largest digital megabrand. The price of $602.70 in midday trading is up more than seven-fold from the issued price $85 at the float in 2004.
Read more »

Empty cameras on empty roads
It's so horridly early that this silver Renault Megane is sweeping through almost desolate streets, slipping out of London's Kensington district and onto the arterial roads. 
Read more »