Since 2000 I've been tracking the growth of digital advertising in the US, and this edition of Digital Intelligence how the world's largest online ad market is changing, traces recent trends, forecasts and key issues in the world's largest online ad market.

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Takeout
The US market is the largest in online advertising by a long way, yet the role of traditional media in the mix hasn't yet been affected to the same scale as in the UK and parts of Scandinavia. It's been fascinating to collate the research because it underscores that whether the advertising climate is strong or in recession, migration to the web is unstoppable. Remember: we're only part of the way to a new balance of marketing, with no slowdown in the pace of change.

I hope you enjoy the edition, and if you have a comment or perspective then mail me back and we'll add it online.

Best for your digital strategy


Danny Meadows-Klue
Founder and Chief Executive
Digital Strategy Consulting

Economies of innovation
There's a massive economy of scale in the US that reduces the risk for new businesses and gives a large potential audience on day one. The world's largest advertising market is lucrative place to start out, and with high volumes of advertising in all media, there was little resistance to the arrival of a new kid in town.

Many of the global digital brands started out here: Yahoo, Amazon, Ebay, MSN, YouTube, Google and Facebook have all broken new ground in marketing. Yahoo showed the media value of links and navigation, Amazon created affiliate marketing, eBay helped every micro business gain a storefront online, MSN pioneered research that put web branding on the map, YouTube forced TV directors to think again, Google wrote the new rulebook on valuing sales leads, and Facebook gave us all the tools to advertise the brands we love to the people we love. It's not just that the US has an economy of scale; it has an economy of innovation.

Market size
The total US web ad market will be worth around $25,460m this year, and while the recession is seeing massive retractions in media investment across all channels, it's barely denting the web sector. The search engine sector is taking 45% of web spend, but that doesn't include any of the massive investment every business makes in search engine optimisation. That's a hidden investment.

Classifieds migrate; revenues evaporate
Classified advertising has now shifted from print to the web, with jobs, accommodation, cars, travel, personals etc all finding a more efficient home online for both the buyer and seller. But while the ads may have shifted, the revenues didn't. Newspaper ad rates were artificially high because they sold a scarce resource: audiences. Since 1995 when Craig Newmark launched the now legendary CraigsList in California, the fate of print publishing classified rates was sealed: remove the scarcity and the costs of production, and the price collapses. Newmark's understated model drained hundreds of millions out of the newspaper industry which lacked the innovation to change. 95% of classifieds will end up on the web, but the yields will be less than 10% of what the print industry grew fat on.

Forecast: continued migration, worse to come for TV
The regional newspaper industry will survive, but at a tiny fraction of its current size, with many cities only having a quality weekly printed paper, but large and lean web operations. In the 90s analysts talked of newspapers suffering 'death by a thousand knives' as classified ads stopped one by one. Long before Craigs List went mainstream, the newspaper model had been undermined, but weak responses from leadership teams who failed to lead sealed the fate. Recession simply sped up the changes. At Digital we forecast a closure of 10% of regional newspapers by 2011; we're now updating this to 20-23%, with additional losses in pagination and publishing frequency. The media model moved on; newspapers didn't.

Our 3 year medium term forecast is that the web will account for a quarter of all advertising spend in the US (by the end of 2012).

Our short term forecasts are that in spite of recession online ad growth will continue with search and social media advertising balancing the short term contractions in the display market. That said, for an industry that's enjoyed almost a decade of growth three or four times the size of any other channel, this pain will be strong.

Ad rates will continue falling in all media, and in a buyers market the biggest effects of recession are yet to be felt offline. TV, newspaper, magazine and printed directory ads will all continue sharp decline through 2009. With the exception of a seasonal bounce at Christmas the market will be flat till summer 2010 making it uneconomic for many offline media owners to continue. The market capitalisation of media groups will continue to tumble and closures and consolidations will be the headlines throughout the second half of 09 and first half 2010.

Three year outlook: trends though 2012
Here are ten key trends we've been tracking, that we continue to be critical drivers for online advertising growth and the migration of marketing throughout our medium term forecast:

1. Search swells further
   In spite of the massive size already, the switch to search engine marketing continues, with high emphasis on both paid-for clicks and position in natural search results
2. Video and television migrate
   A rapid increase in the volume of video content online as key demographic groups migrate to web-based viewing rather than traditional television; within this mobile will play a significant role as new generation handsets roll out
3. Smarter social media marketing
   Strong migration away from classic advertising to smarter and more engaging social media formats from branded content to sponsorships and social applications
4. Mobile web arrives in North America
   The new generation phones and apps stores finally unlock the long awaited step-change in the use of mobile content, mobile web and mobile social media. With this comes mobile direct marketing and geo-location based advertising
5. Affiliates evolve
   Individuals becoming affiliates within expanded affiliate and social networks
6. Ad-effectiveness falls
   Continued erosion in advertising effectiveness as consumers become even more adept at ad avoidance
7. Retail consolidation and structural change
   The natural consolidation of a cluttered retail market with fewer, more globalised stores and strategies
8. Classified migration
   Completion of the migration process to a stable level where 85% of classified volumes are web-based
9. Analytics-driven pricing
   Widespread adoption of more effective trading mechanisms based on the real and long term value of leads
10. Auction based trading and transparent pricing models
    The structural change triggered by Google's self-service and auction models will finally spill over into the wider online media market, with highly transparent pricing and a critical mass of auction-based trading platforms

Your comments
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Online advertising spend: US
Internet advertising spend in the US since the internet "boom" in 2009

Online advertising spend by format: US
Analysis of advertising formats by spend (Q2 2008)

Online advertising spend forecasts: US
Forecast growth of online advertising spend: US 2008-2009

Online advertising spend forecast: US
Anticipated growth of internet advertising in the US until 2012

Online advertising spending in US
US internet advertising spend predicted to double in the next 3-4 years

Internet advertising: US
Advertising spend migration in the US

Online advertising spend: US
Search stabilises at 41% of online advertising spend with display around 21%

Advertising spend: North America
Ad spend in North America will decrease by 1.6% from 2009-13, June 2009

Display ads generate online brand and site searches
10 July 2009 - The number of internet users who respond to display ads by carrying out search queries is almost as high as those who repond by clicking directly on the ads themselves, according to new research. More...

Internet advertising effectiveness: US
Response to viewing advertising on ad-supported website, June 2009

Internet advertising effectiveness: US
Response to viewing advertising on ad-supported website, June 2009

Ad skipping on course for 20% as DVR sales rise in US
02 July 2009 - According to DVR Research Institute, 20% of US viewers will actively skip TV ads by 2011 (from 6% currently), as DVR sales continue to rise. More...

Self service ads trend grows: Yahoo! launch My Display Ads
22 June 2009 - New toolkits released from Yahoo! this month apply the ease of search engine advertising creation to graphical ads. More...

Google drops ad exchange hint
20 May 2009 - Google's Chief Executive Eric Schmidt has hinted that the firm may have plans for an online ad exchange. More...

Twitter revenue model: 2.0?
18 May 2009 - The funky microblogging social app could be close to unlocking a massive revenue stream thanks to mobile operators. More...

US internet ad spend rose in 2008
05 May 2009 - New research from TNS Media Intelligence shows that online display advertising in the US grew 4.6% in 2008. More...

US online adspend tops $23.4bn in 2008
30 March 2009 - The latest Internet Advertising Revenue Report from the IAB US and PricewaterhouseCoopers reveals that total online ad revenues totalled $23.4bn (£15.77bn) in 2008, up 10.6% on 2007 ($21.2bn or £14.28bn). More...

Twitter runs its first ads
24 March 2009 - Twitter has launched its first third-party advertisements. More...

Google trials behavioural advertising
11 March 2009 - Google has launched a trial of behavioural targeted display advertising across its content network and YouTube. More...

Yahoo! upgrades search ads with videos and pictures
20 February 2009 - Yahoo! is adding video and graphic functionality to its search ads following a successful trial towards the end of 2008. More...

Q3 online adspend revenues up 11% in US
20 November 2008 - The latest online adspend figures from IAB US and PwC show that revenues grew 11% year-on-year to reach $5.87bn (£3.81bn) - the second-highest quarterly result ever achieved. More...

Google uses AdWords model to profit from YouTube
13 November 2008 - Google is bringing in a variation of its AdWords model to YouTube in an effort to raise revenues from the leading online video site. More...

MySpace to generate revenues from copyrighted content
06 November 2008 - MySpace in implementing a novel way of generating ad revenues and resolving copyright issues with regards to copyrighted video clips uploaded by users. More...

Web ad rates drop over 25%
23 October 2008 - Challenges in the wider economy spilled onto the web, pushing ad rates in the US down 27%. More...

Online advertising prices: US
Web advertising rates (CPMs) drop 25% in US: Q3 2007 - Q1 2008

Obama campaign uses in-game advertising
14 October 2008 - Barack Obama's presidential campaign has gone after the youth vote with a high-profile use of in-game advertising. More...

Online adspend slows in US
07 October 2008 - New US figures from the IAB and PwC show that online adspend grew 15% year-on-year in the first half of 2008 to reach $11.5bn. More...

Yahoo! re-launches ad network
08 September 2008 - Yahoo! has re-launched its online advertising network, and now claims to be able to reach 80% of web users in the UK and Ireland. More...

Microsoft in search and ad deal with Facebook
24 July 2008 - Microsoft has agreed a new deal with Facebook under which it will integrate its Live Search product and serve paid search ads on the social networking site. More...

Facebook overtakes MySpace
23 June 2008 - Facebook has surpassed MySpace in terms of global unique users according to new data published by ComScore. More...

Q1 ad revenues up 24% in US
10 June 2008 - New figures from IDC show that online ad revenues in the US rose 24% year-on-year in Q1 to reach $7.1bn (£3.6bn). More...

US online ad revenues reach $21.2bn during 2007
23 May 2008 - The latest IAB US / PwC online adspend report puts total online ad revenues for 2007 at $21.2bn (£10.78bn) - up 26% on 2006's record figure. More...

Google opens AdSense to third party ad serving and tracking
20 May 2008 - Google has opened up its AdSense content network in the US to allow advertisers to serve and track ads using approved third-party providers. More...

Yahoo! partners with WPP in ad deal
16 May 2008 - Yahoo! has signed an ad partnership deal with WPP which lets the latter firm buy ads on Yahoo!'s online ad exchange. More...

Behavioural advertising gets a narrow thumbs up from consumers
10 April 2008 - Latest findings from Harris Interactive suggest that if privacy safeguards are in place, most consumers are okay with the ideas and models behind behavioural advertising targeting. More...

Behavioural advertising attitudes in US
How comfortable are people when websites use online activity information to tailor advertisements or content to their interests?

TradeDoubler launches contextual advertising service
02 April 2008 - TradeDoubler has launched td AdMatch a new contextual ad service. More...

Online set for 10% of all US advertising
31 March 2008 - Further projections from eMarketer estimate that US advertisers will spend $25.8bn (£12.9bn) online during 2008 - down from their previous forecast of $27.5bn (£13.77bn) made last October. More...

Microsoft looks at ad yield management specialist Rapt
14 March 2008 - The announcement in March that Microsoft was interested in advertising yield management specialist Rapt was particularly interesting because of the effect Rapt has had on the pricing of online advertising in the US domestic market. More...

MySpaceTV introduces first pre and post-roll ads
20 February 2008 - MySpaceTV is using pre and post-roll ads for the first time in a music video shown on the site. More...

Radio facing 2% fall in revenues in US
31 December 2007 - Radio advertising could fall up to 2% this year as the local advertising sector slows. More...

AOL buys Quigo for $340m
07 November 2007 - Time Warner-owned AOL is to buy Israeli online advertising firm Quigo for $340m. More...

Facebook ad platform signs up 100,000 branded pages in first 24 hours
07 November 2007 - Facebook have launched their new ad system, allowing firms to set up branded profile pages. More...

US online adspend: new records set as net breaks $5bn a quarter
05 October 2007 - 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. More...

Online advertising spend
Search and display continue to be leading formats

Google launches mobile ad platform
18 September 2007 - Google has added another string to its bow with the launch of AdSense for Mobile. More...

24/7 Real Media launch customer re-targeting tool
14 September 2007 - 24/7 Real Media have launched a new tool which allows advertisers to target potential customers with personalised display ads. More...

Web advertising spend growth: US
Total online advertising spend in the United States and annual growth

Online advertising spending: US
Alternative media spending, by segment, 2007

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Advertising spend: Worldwide
Worldwide advertising spending will reach $421 billion in 2009, June 2009

ZenithOptimedia: global online advertising to grow 10% in 2009 against total adspend falls
06 July 2009 - The latest global adspend forecast from ZenithOptimedia has revised the firm's 2009 prediction from -6.9% to -8.5%. More...

Worldwide advertising spend forecasts
Global advertising recession 2009, minor recovery in 2010-11, 2007-11

Worldwide advertising spend forecasts
Global advertising recession 2009, minor recovery in 2010-11, 2007-11

Advertising spend forecasts: only internet grows
Advertising forecasts show only internet advertising continues growing, 2007-2011

Advertising share by medium: Worldwide
Internet ad expenditure set to overtake magazine spend in 2009, 2007-2011

Internet shoppers trust brand websites as much as online consumer opinions
08 July 2009 - The latest Nielsen Global Online Consumer Survey has found that brand websites are as trusted as online consumer opinions. More...

Who do consumers trust?
People having some degree of trust in each form of promotion, worldwide, April 2009

Trust in advertising: Worldwide
Forms of advertising ranked by changes in levels of trust from April 2007-09, April 2009

In-game advertising on course for $1bn in five years
26 May 2009 - Screen Digest have predicted that in-game advertising will be worth over $1bn (£627m) by 2014. More...

Global online adspend to grow 8.6% as total media budgets fall
14 April 2009 - The latest forecast from ZenithOptimedia predicts that global media spend will decrease by 6.9% during 2009. More...

Global mobile adspend to reach $2.4bn in 2009
12 August 2008 - The latest Wireless Trends Outlook from Strategy Analytics predicts that global mobile adspend will reach $2.4bn in 2009 up from $1bn this year. More...

Mobile advertising spend: global
Mobile ad spend growth set to leap by 140% in 2009

Mobile advertising spend: global
Comparison over 2007-2012 (millions)

Online ads more effective on branded websites
01 August 2008 - Online ads on branded sites consistently perform above those on other sites. More...

Online ad effectiveness differences
Ads on branded content sites significantly more likely to increase message association and purchase intent for affluent audiences

Online ad effectiveness for video ads
Video ads on rich-content sites further raise brand awareness, message association and purchase intent

Global online adspend on course to take 10% during 2008
01 July 2008 - A new forecast from ZenithOptimedia predicts that online advertising is on course to take 10% of all global adspend during 2008. More...

Interactive adspend on course for 15%
25 June 2008 - GroupM predict that global interactive marketing (including online, mobile and gaming) will take 15% of all adspend budgets by 2009. More...

Mobile ads appeal to young consumers
12 June 2008 - Mobile advertising is nearly ten times more effective on 16-24 year-olds than alternative forms of advertising. More...

Online close to 10% of global adspend
02 April 2008 - ZenithOptimedia has upgraded its predictions for online adspend's share of the total global ad market for 2008 from 9.4% (from its December forecast) to 9.7%. More...

Mobile search market to reach $4.8bn by 2013
18 March 2008 - The latest estimate from Juniper Research expects annual revenues from mobile search to reach $4.8bn (£2.4bn) by 2013. More...

Mobile ad spending to grow 120% during the next year
18 September 2007 - The latest Jack Myers Media Business Report forecasts that global mobile advertising will grow 120% during 2008 to reach $1.1bn (from $500m - £246m). More...

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