Digital Strategy Consulting

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

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Lead analyst for this report is Danny Meadows-Klue.

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European online advertising breaks €4.5bn
The latest wave of our tracking study confirms that the European online ad market topped €4.5bn in 2005. With growth rates ahead of 60% year-on-year in many countries, 2006 is set to be another record breaking year.

That's our conclusion from talking with trade associations that have been tracking online advertising spend in 14 markets across Europe. By collating evidence from national IABs, it's clear that the switch into online is gaining momentum; enough for us to conclude that online marketing across Europe has reached its 'tipping point'.

Since 2000 the web has become established as a mainstream consumer media channel, and across the continent marketing budgets have now followed audiences - although the pace and scale varies greatly between countries. The Digital Europe tracking study provides a snapshot of where the industry is today and directs you to national IABs for more information. In this edition of the report I've also added in more commentary on the nature of the growth and the patterns that are emerging across Europe. This followed the wave of questions that hit my inbox after the last edition.

There's a summary of the key findings in this briefing, and a link for you to download the report. If you have questions and would like to join us on an analyst's conference call to discuss the findings, then email me back. And in the Diary Dates pages on the website are details of some of the events I'll be discussing the findings at.

Best regards from all here at Digital,



Danny Meadows-Klue
Founder and Chief Executive
Digital Strategy Consulting


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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.

Market share: the key metric to watch

Online advertising has already crossed into the mainstream of media in eight European markets, taking more than 2% of the national spend on media. The UK continues to lead the pack, both in terms of total online spend and the share the web takes of all media spend within the country. Share is the key metric in determining how digitally sophisticated a market is, and in the UK the internet reached 8.4% of all media spend in H2 of 2005 following twelve consecutive record-setting quarters. Belgium, Denmark, Finland, France, Germany, Netherlands and Poland have also crossed the 2% threshold for the share the web takes in their national market, with Germany, France and the UK accounting for more than 80% of the overall European market. This report only presents official data from each market, but with search engine advertising proving difficult to track in many countries, these figures probably understate the real market size in several countries, and were search to be fully factored in then Italy too would be reaching the 2% threshold.

However, with audiences across the continent spending 20% - 25% of their 'media time' online, it's no surprise marketers are turning their attention to the web, now that key hurdles including the standardization of advertising formats, the arrival of video and the reach of web marketing, have all now been crossed.

Online's share of total media spend across Europe
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 is rising, and the rate varies from around 1% to 7.8% in the most mature markets.



Source:
IAB Europe / Digital Strategy Consulting 2006

Summary

Strong growth; a patchwork of markets
Europe's markets are all growing rapidly, and are generally following along a similar path in the widespread adoption of interactive advertising by marketers. Each country is at a different stage in that journey. However, each market also has its own unique experience of how online is being incorporated into the media mix, and which client sectors are championing its use.

Online audience
The percentage of the population who has access is one of the underlying determinants for the size of the online advertising market. As the price of broadband connections comes down, we've tracked the way the proportion of each national population that has online access has risen rapidly. This creates a massive shift in media focus and consumer media consumption throughout Europe.

Source: IAB Europe / Digital Strategy Consulting 2006

A €4.5bn market? Probably more
The research collated here suggests Europe's marketers spent around €4.6bn in online advertising during 2005. It's worth remembering that data were not available for a few countries, and that many of the 2005 forecasts were simple cautious doublings of the first half year reported figures. This means Digital Europe should only be used to give a general picture of the landscape. On balance the total market size is likely to be significantly greater than the €4.6bn.

Europe's online advertising pie
By extrapolating the available figures to create a conservative estimate of each market's full year spend for 2005, it's clear that the three top tier markets continue to dominate.

The UK remains the largest market, but with the French market data based on ratecard, direct national comparisons are difficult.


Source: National market estimates and actuals for 2005 supplied by industry trade associations

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

Getting clear and accurate data on a young and growing industry is always a challenge. We would like to thank all of the national IABs and partner trade associations that helped by providing data. Although Digital Europe is a clear snapshot of where each market currently is, in the report we draw your attention to the differences in methodology and counting each country uses, which prevents a perfect like-for-like comparison. The next edition of Digital Europe is planned for the Autumn.

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.