The shift to online advertising: more selective, but the trend continues

Measuring effectiveness rules the day

Online advertising is likely to see its global share grow from roughly 10 percent at the end of 2009 to 15 percent by the end of 2011 1. And though online fell roughly 5 percent in the first three quarters of 2009 2, this was still a much smaller decline than almost any other advertising category 3. In other words, even though online growth was negative, it continued to gain share.
Not all online ad categories may participate equally, though, with search, click, social network, and cost per action continuing to experience the greatest growth. But overall, many advertising buyers seem to believe that online spending offers “more bang for the buck” and that online is currently too small a portion of their spending 4. Advertisers also increasingly want the ability to measure effectiveness, and are becoming indifferent to other purported advantages of traditional advertising 5. This could indicate that the media and advertising industry are about to undergo “innovative disruption 6” from online. Industry players may need to plan for a possibly sharp and permanent reduction in revenues and margins, as online share climbs possibly to over 50 percent 7.

Bottom line

In response to online, entire advertising and ad-supported ecosystems should consider consolidating, controlling costs more aggressively, and seeking new business models. Traditional media companies may need to develop an earnings-positive online platform that supports their traditional business and rapidly embraces tools, technology, and a new business model that matches the perceived advantages of online, specifically the measurement of advertising effectiveness and delivery of value for dollars spent. Agencies may need to charge on the basis of results, not budgets. If a $10 million campaign can be measured as producing equivalent results to a much larger spend, then the ad agency should be paid as much money as before. 1 Projection based on growth in online and some measure of price deflation in traditional media advertising rates. 2 IDC: Worldwide online ad spending drops slightly in Q3, PC World, 11 November 2009 3 U.S ad spending fell 15.4 percent in the first half, Nielsen reports, Nielsen, 1 September 2009 4 Interviews with industry executives undertaken specifically for this report: per discussions with advertising and advertiser executives, while the measurability of online versus non-online was an important factor, it was not the most important factor. Advertisers believed that the key reason for using online was that it delivered the best value for money. Even if non-online was equally able to provide metrics, but did not change its prices, online would continue to grow share. 5 2010 Outlook survey shows marketing budgets to grow, BtoBonline, 16 November 2009 6 Disruptive technology, Wikipedia 7 Targeting efficiency could kill the media business, Cross Targeting, 24 October 2009: Copyright Notice: Material in this article is © 2010 Deloitte Global Services Limited, or a member firm of Deloitte Touche Tohmatsu Limited, or one of their affiliates.