Online Ad Spend up 21% in UK; Could Overtake TV by '09

Internet ad spending in the UK grew to £1,682.5 million in the first half of 2008, a 21% year-over-year increase, according to the latest figures from the Internet Advertising Bureau (IAB-UK) in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Center (WARC), writes MarketingCharts.

The biannual internet advertising spend study found that the total advertising market was £8982.5 million, down 0.7% year-over-year, during the period from January to June 2008. The advertising market would have experienced a 4.6% decline without the internet’s growth.

In real terms, internet advertising added £348.2 million to its bottom line when compared with the same period in 2007. Online spending exceeded expectations to increase its market share by four points to 18.7%, only 0.6% behind total press display (19.3%) and 3% behind TV (21.7%).

The study suggests strong advertiser confidence in online media - including search, classifieds, rich media and video - at a time when TV, print, outdoor and radio, are experiencing declines.

Online formats surpassed expectations

• Paid search spending grew 28% year-over-year and was worth £981 million in the first half of 2008, with its market share marginally up to 58.3% of total online advertising (57.8% in first half of 2007).
• Total internet display advertising spending rose 16.3% year-over-year to £333.8 million. This was boosted by a 36.6% increase in spending on embedded formats such as banners, rich media and video. Internet display ads are still the only major display medium to be growing.
• The majority of online display ad spending is still via major portals and online publishers, but sales networks - representing thousands of smaller sites - have increased their volumes and account for 41% of all display expenditures. Sales houses and networks are growing the 'long tail' of internet advertising - smaller and niche websites - and offer advertisers a streamlined 'quick sell' for direct response campaigns.

Technology, finance and entertainment & media top categories

• In terms of revenues for specific sectors, technology is the top category with a 17.3% market share, followed by finance at 11.9%, entertainment & media at 10.7% and Recruitment at 9.9%.
• Classifieds grew by 30.2% year-on-year to £361.6 million as recruitment, property, automotive and small ads continued their migration to the internet from print classifieds, which declined 10% year-on-year.

Key growth drivers:

Advertising networks: The rapid rise of advertising networks as efficient, streamlined warehouses that sell display advertising to the internet's 'long tail' are opening up the internet to more advertisers.

Online audiences: The online population now reflects the demographic make-up of the UK as a whole, with a 52%/48% male/female split. 21% of internet users are 25 to 34 years and at the other end of the spectrum, the over-50s now represent 30% of total time spend online.

3G, wireless and inexpensive laptops: Wireless and laptops are no longer a luxury item or confined to business. Mobile network '3' sells more 3G dongles than mobile phones, T-Mobile offers a £10 per month 3G dongle, which coupled with a powerful inexpensive laptop, substitutes for a traditional broadband contract on a fixed-based PC. In Q1 2008, 6% of adults used mobile broadband and in the five months from February 2008, 511,000 mobile broadband connections were sold by the UK's five mobile network operators. 75% of those with access to mobile broadband use it at home, 18% do so at work and 27% while elsewhere/on the move.

Broadband as commodity: Faster, cheaper broadband, with deals as low as £4.50 per month from Virgin Media are attracting more people online. The proportion of homes taking broadband services grew to 58% by Q1 2008, a rise of six percentage points on a year earlier. By the end of 2007, 58% of UK households had a broadband connection, up from 52% a year previously and from 41% two years ago.

Catch-up TV: Launch of services such as BBC iPlayer and Channel 4’s 4oD are breaking the barrier between video entertainment and the internet as a communications or shopping tool. The Beijing Olympics was the tipping point for BBC iPlayer with a broader demographic profile using the online service. Consumers are responding to this increased supply. Some 27% of those age 15-24 claim to use the internet for watching TV programs in 2008, up by 17 percentage points in 12 months. 45% used it for watching video clips/webcasts, also up by 18 percentage points over the same period.

Social networking websites: Social media continues to have a large impact on the market, especially as an audience driver, the research said. In the first half of 2008 ad spending for this area was relatively low and coming off a small base, but is expected to grow steadily in the coming years. CPM values for user-generated content are lower in this sector and they are generally bought through networks. However, the premium channels such as MySpace Music and MySpace Film are sold at a higher CPM rate.

"Online is not immune from the economic downturn, but while other sectors see falls in expenditure the internet is still experiencing an incredible increase and is propping up the entire advertising market," said Guy Phillipson, CEO of the IAB UK. "The growth in internet advertising spend is beating all expectations as advertisers look to maximize their budgets, and take advantage of new display advertising formats such as video. They are also increasing their investment in paid-for search marketing because it delivers measurable returns on investment."

70% of UK Shoppers Want Online Reviews, Ratings

This will make a most
savory Yelp review.

A study released by Jupiter Research and Bazaarvoice found 70 percent of UK consumers consider ratings and reviews the most helpful web feature when researching an online or offline purchase.

The research reflects last week's Forrester report, which found 64 percent of US consumers want ratings and reviews available on the websites they visit.

The UK report compared ratings and reviews to other resources. 53 percent of the 1,000 online users surveyed said customer reviews were the most helpful source of information.

Recommendations from friends came second, with 47 percent. Only 11 percent cited TV ads as the most helpful source, and four percent called magazine and radio ads a major influence when deciding what to buy.

Affiliate Marketing Drove £3B in UK Sales in 2007

Well, I'm certainly willing
to barter.

The UK market for affiliate marketing grew an estimated 45 percent in 2007, taking the total value of online sales generated by this channel in 2007 to more than £3 billion, according to research published in E-consultancy's Affiliate Marketing Networks Buyer's Guide, reports MarketingCharts.

The £3.13 billion total for 2007, compared with £2.16 billion in 2006, illustrates the healthy state of this digital sector, which will continue to grow strongly during 2008, E-consultancy said.

Sectors such as retail, travel and financial services continue to be the bedrock of affiliate marketing, with both Blue Chips and SMEs ramping up their investment, according to E-consultancy's head of research, Linus Gregoriadis:

"Affiliate marketing continues to gain momentum because the performance-based model is so popular with advertisers. When the biggest consumer-facing brands in these industries do not have a well-defined affiliate strategy, it now tends to be an exception rather than the rule," Gregoriadis said.

"The channel has become much more strategic and boardrooms are starting to take notice. Media agencies are becoming increasingly involved in this sector as a consequence of its increased profile," he added.

According to the research, commissions and fees paid out to affiliate networks (covering payments for both networks and affiliates) amounted to £186 million in 2007, up 40 percent from £133 million in 2006 (and compared with £83 million in 2005).

The growth of affiliate marketing reflects the buoyant nature of online retail in the UK. According to the IMRG, the UK's online retailers generated some £46.6 billion in sales last year.

About the study: The 2008 Affiliate Marketing Networks Buyer's Guide assesses the UK marketplace for Affiliate Marketing, with a focus on 17 leading networks. The 167-page report also contains an overview of market trends and profiles of those companies offering related services.

Has UK Marketing Peaked?

OCTOBER 17, 2007

Fourth quarter will decide.

UK marketing spending, which has been propped up by online ad spending, is likely to see some pullback, according to NTC Economics' "Q3 2007 Bellwether Report."

NTC said that financial market turmoil was the main reason that UK marketing spending may start to flatten out. "Growth in Britain's marketing industry has been strong overall, and some sectors have seen record gains," said Karin von Abrams, senior analyst at eMarketer. "Online spending in particular is robust and expanding.

"But the impact of recent turmoil in the financial markets should not be underestimated, especially in the UK," Ms. von Abrams said.

The Web accounted for more than 6% of all UK marketing spend in the third quarter of 2007, according to NTC. The company also found that more than 40% of companies allocated at least 5% of their total marketing spending to the Internet.

As recently as June 2007, the Internet Advertising Bureau UK, PricewaterhouseCoopers and Wilkofsky Gruen Associates predicted that UK online ad spending would reach $9.9 billion by 2011.

"Marketing budgets tend to be cut quickly in response to changing business conditions, so the strength of the Q3 survey suggests that marketing spend held up well in the face of the current financial turmoil and that the real economy remains so far largely unaffected," said Chris Williamson of NTC Economics, in a statement.

"However, it will no doubt take some time for the full effects of the banking crisis to be felt, so it is likely that these strong Q3 numbers represent a peak in the current cycle," Mr. Williamson said.

eMarketer shares the view that advertisers are a little cautious as a result of financial market uncertainty.

"In fact, we picked up signs of growing uncertainty in the early summer, and our existing forecasts for 2008 and 2009 reflect this change of mood," Ms. von Abrams said.

eMarketer's 2011 UK online ad spending projection is $1.7 billion lower than the IAB UK figures.

"It is encouraging that growth in the industry in Q3 remained strong and appears to be unaffected by the upheaval in financial markets," said Moray MacLennan, chairman of UK-based ad trade group IPA and chairman of Europe at M&C Saatchi, in a statement.

"The data for Q4 will be key in revealing the extent to which recent economic news has affected marketing budgets," he said.

Find out what US marketers can learn from their British counterparts. Please read eMarketer's UK Online Advertising report.