Exclusive: Digital advertising is booming, here’s why

Following the publication of the latest UK adspend forecasts, James McDonald, research analyst at Warc, explains the drivers behind digital’s double-digit growth.

Internet adspend is expected to reach £8.1bn in the UK this year, according to the latest data from the Advertising Association/Warc Expenditure Report, released this week. That total is forecast to rise to £9bn next year, a third of which will be spent on mobile advertising.

Warc bases these forecasts on data from the Internet Advertising Bureau (IAB) and PricewaterhouseCoopers. While the data within the Expenditure Report can be cut in a number of ways, there are two main approaches for measuring internet adspend.

The first is used by the IAB, which looks at the entire digital space, from online magazines to video-on-demand (VOD) services, banner ads to iPads. Also, from 2014, a new standard definition was launched, based upon consultation with a range of publishers including Facebook, Twitter and YouTube, which has improved measurement of digital native advertising spend (estimated at just over £500m last year).

The sum of expenditure from the many digital advertising avenues the IAB monitor reached £7.2bn last year, 15% higher than in 2013.

The second approach, and one often used by Warc in our own research, is to calculate an internet-only ‘pure play’ total, which excludes digital revenues for non-digital media such as newspapers, magazines, and VOD for TV.

Both methods are effective measures of internet adspend, and serve to illustrate just two ways in which the data within the Expenditure Report can be used. All this before getting into the granularity of search, classified, display, social, SMS/MMS, recruitment, pre/post roll…

But whichever way you look at it, one thing is clear: internet advertising is booming.

Total online adspend rose 15% last year, and we forecast further growth of between 11-12% this year and next. What’s really impressive about this rise is that internet is already the largest medium for advertising in the UK, surpassing TV in 2010. By way of comparison, this crossover isn’t expected to happen in the US until next year¹.

But what’s driving this double-digit growth?

Real time buying (RTB), including programmatic, has played its part by making the purchase of ad space automated and instantaneous. Couple this with the precise targeting digital advertising provides, and one starts to understand why marketers are seeing digital as a worthwhile channel.

But the most important factor is being driven by arguably the biggest media trend of recent years: the increasing penetration of smartphones, which comScore estimated at 74% of the UK population last year. This has in turn resulted in advertisers following the shift in consumption, and investing more in mobile.

Ad revenues for mobile grew almost 59% year-on-year to £1.6bn in 2014, a watershed moment for the medium, as it meant that marketers spent more advertising via mobile than in national newspapers or magazines for the first time.

The AA/Warc Expenditure Report indicates that mobile will become the third-largest medium for advertising expenditure this year, behind only television and the wider internet. Further, we expect mobile to account for just over a third of all internet advertising in 2016, with adspend of around £3bn. This share rises to 40% when measuring internet on a pure play basis.

“The continued increase in mobile ad spend shows that advertisers are catching up with consumers,” said Tim Elkington, chief strategy officer at IAB UK.

“People have a real desire to be connected all the time so that they can get the latest information or deal and to fill down time. Brands are increasingly realising that this provides them with a great chance to engage with consumers in a really focused environment. This trend is set to continue as people get more and more confident with transacting on mobile.”

To find out more about subscribing to the AA/Warc Expenditure Report please visit the website or contact James McDonald for additional information.

Mediatel subscribers can also now gain access to adspend and revenue figures by medium and aggregated forecast trends by medium from AA/WARC, Carat, eMarketer, GroupM and ZenithOptimedia in the Media Landscape tool

¹Source: Magna Global, Warc International Ad Forecast, December 2014