The Race to $60 Billion (Or Is It $80 Billion?)

By Dave Morgan

This has been a big week for the advertising and marketing industries. First, at the 4As Media Conference in Las Vegas, and then at the DMA Leaders Forum, where industry leaders discussed everything from PURLs (personal URLs) to variable data printing (massively scaled personalized printing) to proposed privacy legislation starting to make its way around Washington. Finally, yesterday, we had the Jefferies & Company's Internet Conference, in which the company released its latest report on the online advertising industry, estimating that it was going to grow to over $60 billion worldwide by 2010. While that number may seem big, it wasn't too shocking for most watching the industry, since only days earlier, Piper Jaffray had released a 424-page report (yes, it took almost a full ream of paper to print) on the online advertising industry estimating that global online ad spending will exceed $80 billion by 2011.

These are big numbers for sure, and it's natural to ask yourself, how is this possible? Most peg the online ad industry today at just over $30 billion worldwide. Getting to $60 billion in four years or $80 billion in five is a lot of growth in a very short time, no matter how optimistic you are. So, where might all of this growth come from? I haven't been able to get through the reports in their entirety yet, but I do have some thoughts of my own on the subject.

More search. We're going to see more growth in search. The majority of small businesses don't even have Web sites yet, so there is a lot of headroom yet in this market. Search spend can certainly double or triple in size over the next few years.
Brand dollars. We are just beginning to see brand dollars move online in meaningful ways. The audiences are online; brand dollars are certainly going to follow much faster than they have.
Non-U.S. While the U.S. has certainly been leading the online ad market, we are starting to see very significant growth outside of the U.S. -- and even some markets like the UK are "leapfrogging" the U.S. in terms of share of spend allocated to online. We will see much more of this in most major ad markets outside of the U.S.
Video and targeting. With more brand advertising comes requirements for more impactful creative (sight, sound and motion) and better targeting. Both are now available and both will certainly help drive these big numbers.
Social networks and conversational marketing. Social media is growing at an extraordinary rate, and it cost very little to support. Not only can it provide lots of audience attention opportunities to deliver ads, but also audiences are telling each other and the world at large a tremendous amount about themselves. They are engaging in conversations about brands -- and brands now have the chance to have conversations directly with these audiences. The business models are just being figured out now, but this will be big.
Mobile.Mobile will certainly be a big part of the growth of this industry, but I am not sure how much it will drive gross ad spend in the near term. There are still a bunch of challenges that can slow down the spend. The biggest by far is that carriers and their "walled garden" decks are hard to work with (think the old AOL), and think much more like toll-collecting telecos than ad-hungry Web services companies. Plus, most phone users don't spend much time looking at phone screens, which are still very small.
Inventory optimization. Almost every major online publisher or portal in the U.S. has either recently installed. or is actively evaluating, inventory and price optimization services. While this is happening behind the scenes, its revenue and margin impact will be very, very significant.
Hybrid online/offline direct marketing. This may not be as sexy as user-generated media, but we are beginning to see direct sellers start to link Web-based services and Web storefronts with variable data digital printing and personalized mailers. These people already know how to market, how to manage big databases and how to measure and manage ROI. They will have a big impact on this business.
Vested Googlers. Yes, just as highly successful technology companies like Hewlett Packard, Apple and Microsoft ended up spawning hundreds of start-ups and training thousands and thousands of great executives, so too will Google. Many of the executives that led Google through its entry into the online ad market are just hitting their four-year vesting periods and may be getting a bit bored, and certainly have lots of money to seed start-ups should they desire to. Not only will this enrich the pool of new start-ups and new enabling technology, but it will enrich the traditional media companies, as they create more meaningful digital businesses (see yesterday's hiring of Google's Patrick Keane by CBS).
$60 billion in four years? $80 billion in five years? No matter what numbers you believe, even if they are significantly less than these two, we're in for a wild ride.