Digital Strategy Consulting

Digital Europe
Tracking the growth of online marketing spend
Digital Insight Report
August 2006

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Analyst

Our lead analyst for this report is Danny Meadows-Klue.

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Online advertising is changing the nature of marketing. This is happening across the world, but here in Western Europe we're seeing some of the trends that will eventually spread worldwide.

After the research we published in the Spring about the size of the markets, many analysts wrote back to me to ask for more insight about what the dynamics of change were and the nature of how the industry is evolving.

And that's what you have here: a new edition of Digital Europe with extended analysis, commentary and deeper insights about how this exciting industry is changing. With internet adspend on course to overtake national newspapers within the next few months, the UK offers particularly rich insights into the future for other markets.

I hope you enjoy the report, and if you have any comments then mail me back and we'll try to publish them on the debate and analysis pages.

Best regards from all here at Digital,



Danny Meadows-Klue
Founder and Chief Executive
Digital Strategy Consulting


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"Now that, country by country, the tipping points are being crossed, what is clear is that the momentum built up ensures that the changes coming in the next five years will dwarf those of the previous ten."

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Where next?

We started 2006 predicting online would overtake national newspaper advertising in the UK by the end of the year. When online is placed above the national press in the UK's media hierarchy for the first time, it will send an emotional message to strategic media planning firms who have not yet fully embraced the changes in media consumption. This in turn will generate greater demand for online advertising, significantly at the expense of press and broadcast media.

However, the implications of what's happening in the UK stretch well beyond its national boundaries. A significant portion of the pan-European online advertising industry is planned out of London agencies, and this shift in thinking is bound to have a knock-on effect for the mix of media in pan-European campaigns. The unlocking of the pent-up demand in this sector will herald another stepchange in how online is used, and the relatively sudden arrival of new video formats - as well as a general increased ease of use and professionalism in online trading - will act as a powerful catalyst here. We've been aware of the pent-up demand for multi-market and pan-European media campaigns for several years, but the internet industry's offers were not strong enough to unlock that demand until recently.

The UK has often behaved like a laboratory experiment for revealing what then happens across most other European markets. While there are always national factors that make each market unique, the UK remains a useful indicator in what is set to come in other markets. For example, the emergence of CPM trading, the explosion of Rich Media, the adoption of larger formats in the Universal Advertising Package, and the switch to search all crossed their tipping points first in the UK before being replicated across the rest of Europe.

Our view is that the evolutionary paths of the different groups of markets will continue, but will also continue to head towards a focal point. Total spend is certain to continue rising at very strong rates (more than 30% year-on-year in most countries), but even when it tapers off, it will settle at a level in excess of where television advertising spend sits in many markets. The revolution in media consumption is still underway and with more people each spending more time online, the supply of online marketing opportunities just continues to swell. That's why online marketing will continue crossing its tipping points in each European market until it has firmly entrenched itself as a mainstream tool for all marketers.

Europe reaches its tipping point

The European media markets are changing fast. Following ten years of gradual increase in the role the web plays in people's lives, the advertising markets are now moving, and moving at a quicker pace than ever before. This edition of Digital Europe reveals how online is already taking more than 5% of advertising spend in three countries, and how the 'big three' - UK, France and Germany - are accounting for more than 85% of all Europe's online adspend. However, the research also reveals the stark contrasts between the more advanced networked economies of North West Europe and those of the Mediterranean.


Total market size

Clearly a cascade effect is underway as key opinion formers in each European country embrace online and change the behavior of initially their firms and then the entire market. This new research - which includes collated data for actual spend and forecasts from IABs across Europe - reveals European online advertising spend comfortably broke €4.6bn in 2005 for the first time (a total of €4572m for the markets surveyed). With online advertising figures among the most accurate data sets in the digital networked economy, these figures can be used as a barometer for the much wider digital marketing industry.

The Digital Giants and Europe's online advertising pie
The UK, France and Germany continue to account for more than 85% of all online advertising spend traded within Europe. The UK remains the largest market with the most representative methodology. German data excludes classified advertising and French data is based on ratecard, making direct national comparisons difficult.


Source: DigitalStrategyConsulting.com / IAB Europe


Market share: the key metric to watch

Online's share of total media spend in each European market
The market share of online vs other media is the most revealing way of seeing how the use of digital has advanced. Across Europe share varies from around 1% to just under 8%. The 2% threshold is taken as being the tipping point for becoming a mainstream media and 5% or more is taken as the threshold for the Digital Sophisticats.



Source: DigitalStrategyConsulting.com / IAB Europe


Reflection

Looking back over both the raw data and the interviews that accompanied the project, it's clear that there is a passion driving this strong growth. The passion is based on well founded economics as well as good marketing practice, and although the European landscape is a patchwork of markets each at subtly different stages, they are stages on a journey that leads to the same place. Now that, country by country, the tipping points are being crossed, what is clear is that the momentum built up ensures that the changes coming in the next five years will dwarf those of the previous ten.

About the Digital Insight Report series

In times of huge economic and technical change, knowledge becomes a critical success factor. We created the Digital Insight Reports to bring you insights from a particular part of this fast changing industry.

They are independent perspectives on key issues in doing business or marketing in the digital networked economy, and are published monthly. We also publish similar Digital Thought Leadership interviews and Digital Book Club reviews to share the ideas and thinking of some of the people and companies shaping the digital networked world. These often accompany our own talks and training workshops because knowledge and training can unlock the potential of your team.


Our thanks

We would like to thank all of the national IABs and partner trade associations that helped by providing data.

Contact the national IAB for more information, and use the IAB's European portal - IABeurope.ws - for a listing of all IABs. Several countries may be in the process of setting up IAB associations, and from time to time their organizing teams have been able to provide market estimates.



Digital Strategy Consulting Limited: Copyright 2006, all rights reserved.
Registered offices: The Digital Hub, 34 Kenway Road, London, SW5 ORR. Company number: 4342602.