Online off the boil

This piece originally ran on BUSINESS SPECTATOR

Every three months the Interactive Advertising Bureau of Australia releases figures around the advertising revenue performance of the digital media industry.

Generally they’re pretty predictable. It’s not a matter of whether the industry is growing, the question is always around how much it is growing.

You see, in digital media double digit growth isn’t an exception, it’s the norm. While TV, radio and outdoor celebrate small 2/3/4 per cent increases, digital expects 20+ per cent growth whenever figures are reported.

When calendar year Q2 results were reported last May, many (including me) were expecting the numbers to be bloody and potentially flat or down revenue-wise. Turns out I was wrong and the industry was up 16 per cent.

At the time, I said the following on my Talking Digital blog:

It would worry publishers and the IAB that digital is so heavily reliant on three categories for spend.

Auto, Computers and Technology and Finance represent 46 per cent of total display revenues for Q1 2009. In Q1 2008 they represented 51 per cent. It’s down year-on-year but still a massive chunk of the pie.

Of those three categories only Automotive saw a rise – up 12 per cent year-on-year. Surprising considering the state of the market and the reports around significant auto marketing budget cuts.

So, this week the IAB and PWC released the ad revenue figures for Q3 2009. .

For Q3 the digital advertising pool totalled $466 million, up 3 per cent on the Q2 figure, and up 3 per cent year-on-year.  (edit original claim of a 3% drop is incorrect – my error … there wasn’t a 3% YOY drop … there was a 2.8% rise)

And overall for the last 12 months investment in digital advertising has totalled $1.82 billion – a significant figure.

So what has contributed to the first year-on-year decline in six years?

Understandably, classified revenue is down. It’s down 5 per cent year-on-year. Paid Search is up 12 per cent year-on-year. Solid numbers, but many have predicted year-on-year search increases of 20 per cent or more between now and 2012. Still, there is no sign the search juggernaut is slowing down and it now accounts for 51 per cent of digital advertising investment in Australia. Another key consideration is that one company dominates paid search in Australia, with Google commanding approximately 94 per cent of the total search market (which – unless disaster strikes – should become a $1 billion annual business within the next six months).

For classifieds, the last three quarters have seen revenue decreases. Maybe the digital rivers of gold are drying up? Or maybe they were flooding earlier and have retreated back to normal levels?

The decrease in display advertising revenue would be of some concern. Display advertising revenue basically refers to banners and buttons you see on websites. It also includes other things, such as integration and advertorial, but the majority is banners and related display media.

The display advertising component of the overall digital advertising pie accounts for around 26 per cent of total revenues, however it’s extremely competitive.

Search is a monopoly – Google controls the market. Classifieds are either monopolies or duopolies in the key categories of employment, real estate and automotive.

However, no one company dominates display advertising. Five key players account for about 50 per cent of revenue – those being Ninemsn, Fairfax, News, Bigpond and Yahoo! – with the other 50 per cent spread out across anywhere from 100 to 200 smaller operators.

So a 5 per cent year-on-year revenue drop in a category that is already far too crowded would be somewhat alarming.

However, when you actually look closer at the figures the story isn’t as dire as it may appear.

Above I referred to my earlier concerns around the Automotive, Finance and IT categories accounting for 47 per cent of investment in digital display media. My concern revolved around a reliance on three categories and the potential impact of all three of these categories having a bad quarter on the overall market.

Unfortunately, all three of the categories had shocking Q3’s in terms of ad spend.

Finance was down 10 per cent year-on-year. IT was down 33 per cent. Automotive down 29 per cent. These are significant hits.

With this in mind, a 5 per cent dip in display revenue for Q3 2009 isn’t a bad achievement. Add to this year-on-year increases in FMCG, Health and Entertainment ad spend and the picture isn’t too bad. Q3 2009 was always going to be tough given how robust Q3 2008 was – buoyed by an extremely strong economy earlier in 2008 as well as significant investment and interest around the Beijing Olympics.

One thing Q3 has really shown is the industry’s reliance on a few categories. Bodies such as the IAB are working towards lessening this reliance on these key categories, but they can’t do it alone. More work and collaboration from all elements of the industry – media agencies, creative agencies and publishers – is required.

The ultimate aim? Showing advertisers and marketers how you can help build brands online.

This has yet to be proven, but the most recent revenue figures show that it’s a question that needs to be answered sooner rather than later if the industry wants to maintain double digital growth into the next decade.


2 responses to “Online off the boil

  1. Ben,

    Correction to your para which starts “For Q3 the digital advertising pool totalled $466 million, up 3 per cent on the Q2 figure, but down 3 per cent year-on-year.”

    The total ‘pool’ as you call it was up 3% on the previous quarter and also up 3% on the same quarter the previous year, ie year-on-year.

  2. talkingdigital

    fixed Paul, thanks for the correction.

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