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US: Digital advertising market
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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
Danny Meadows-Klue
Founder and Chief Executive
Digital Strategy Consulting

Digital Insight Report: US advertising market commentary
Digital Insight Report

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Big changes for world's largest online ad market

Every year we provide our commentary 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 short Digital Insight Report explores the nature of channel shift and some of the implications for classic media businesses, advertising agencies and marketers trying to navigate the digital economy.

Deciding where to place media spend is becoming more challenging with each new channel, rather than less. The US market remains unassailably the largest in raw online marketing spend, and although some of the models for media planning and measurement in Europe are now pulling ahead, the trends here usually go global.

With the professionally produced content sector founded on the advertising model, the continued leap in web ad spend has much wider implications for the future growth and diversity in online media and entertainment. The US market benefits from the concentration of home-grown talent at Google, Yahoo, eBay, Amazon, MSN and the digital megabrands, combined with economies of scale of being in the largest online audience market.

Since 2000, we have been talking about the digital networked society and the implications for firms as their sectors make the transition. Digital Insight Reports explore patterns within these changes and provide some of the navigation to successfully make the transition.

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

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

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

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Danny Meadows-Klue
"We're still in the early stages of the transition to the digital networked society. The massive growth in online advertising may have fuelled web media, but the same migration of audiences and advertising is now hurting the classic channels deeply. In this decade of incredible social and technological transition, the major changes are yet to come. Firms who plan to survive transition need to become adept at reading the landscape, and adapt quickly based on what they learn."
Danny Meadows-Klue
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Top stories in our October edition
- US online adspend: new records set as net breaks $5bn a quarter
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- Brits continue to spend more time online
- New York Times abandons subscriptions
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