Internet advertising

Executive summary

All online advertising categories are expected to grow in the next five years, with most segments bolstered by the arrival of Amazon Advertising. However, both search and online directories are entering a period of maturation, as advertisers for whom these channels are relevant are largely already investing in them. Therefore, media companies that operate within these markets must look to extract incremental value from existing advertisers via the investment in new and sophisticated inventory offerings. For display advertising, growth is being fueled by online video, a significant brand-building tool for advertisers as mass reach on more traditional channels becomes harder to achieve.

The category leaders are not without their challenges, though, as they operate in a climate of increased regulatory1 and community scrutiny. For advertisers, the core issue remains the brand safety of these platforms, given their reliance on user-generated content.

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Growth Drivers

1. Advertiser demand for online video inventory
2. Amazon Advertising now available
3. Monetisation of voice search

 

Forecasts at a glance

Fast growth in video advertising will see it account for 25 per cent of the total internet advertising market by 2023

Video is a subset of Display

Online video continues to grow as an integral brand building tool for advertisers

Online video advertising is the fastest growing internet advertising category, experiencing 26.2 percent in 2018.2 This is driven by growing consumer preference for video content,3 including the popularity of Instagram and Facebook Stories, and YouTube, and increased ease of access to video platforms and services.

Globally, consumers are projected to spend 84 minutes a day watching online video in 2020, up 25 percent from 67 minutes in 2018.4 While much of this will be going to SVOD services, advertising supported platforms like YouTube and social media platforms will remain integral for advertisers.5

Voice search teases new revenue streams

Search engine marketing, as we know it today, will reach a period of maturation as the widespread adoption of smart speakers offers new revenue in the next five years. Voice search has changed the way that consumers search - asking questions, rather than searching for terms. Google believes that their product has improved based on its ability to 'provide direct answers',7 and voice search offers a 'quicker, easier and more natural to find what you're looking for'.Assistants, whatever the device, are billed as a common touch point across all connected devices from phone to connected television. This will offer a single, rich view of customer, which will become incredibly useful, especially to retail brands.

While advertising opportunities are limited at the moment, as device penetration in homes and searches per day grows, new performance search products, bought on cost-per-transaction basis are inevitable. The value of these advertisements will likely command a premium price, as it reaches consumers precisely at the time of purchase.

Marketers continue to reinvest their budgets in a range of digital advertising options because they know it helps growth their businesses.⁶

Gai Le Roy, Chief Executive Officer, IAB Australia

Brand safety concerns persist

Digital platforms with predominantly user-generated content still hold a risk for brands.9,10,11,12 While these platforms promise vast reach and essentially hold limitless inventory, for some brands, the risk will always be too great. The recent live streaming of acts of violence in New Zealand in March13 and the advertising of major brands inadvertently screening alongside, and inadvertently funding, antisocial and terror-related activity through programmatic pre-roll advertising on YouTube, has seen some advertisers pause or halt their advertisements on these platforms.

The sophistication and reach of these platforms will mean that despite controversial incidents, advertisers are more likely to execute strategic short term exits from the platform, but possibly not boycott for extended lengths of time at scale. In positive news for Google, bucking the trend of digital platforms being seen as less brand safe was search engines, which is on par with traditional analog channels14 so this revenue stream will be largely unaffected.

Two speed market

While the digital media ecosystem is made up of hundreds of players, there are only a vital few major players that advertisers need to use to reach every Australian: Google, Facebook, YouTube and Amazon. This is consistent with most English-speaking markets.

Despite the strong growth of internet advertising as a category, beyond Google and Facebook, the rest of the online advertising market is in decline.15 Australian online publishers – particularly those that are strategically relying on digital advertising revenue to make up for shortfalls in traditional format advertising revenue - should take note and emphasise their brand safe environment with a focus on professionally generated content rather than reach alone.

Confusion around digital advertising persists for buyers

Manual processes and a lack of alignment between advertising investment decision makers is having an impact on the scale and effectiveness of digital advertising revenue, with BCG reporting that only two percent of brands in Australia and New Zealand have the highest level of digital marketing maturity, where ‘dynamic customer journeys’ are used to achieve business outcomes.16

The variable digital literacy of the Australian advertising industry could hamper online media companies’ ability to attract advertising investment that has been historically deployed in traditional channels. The market’s continued practice of delineating between digital and non-digital marketing roles, especially those with strategic and managerial duties, does not recognise the ubiquity and necessity of digital literacy across all platforms.

Amazon advertising arrives

Amazon’s launch of their Advertising business arm in Australia in 201917 will see investment in internet advertising grow as a percentage of total marketing budgets. Their offering has been crafted for media agencies and advertisers, and the inventory spans the categories of display, video and search.18

Amazon are well positioned to offer addressable advertising solutions, built on a rich, and growing database of consumer behaviour and purchase insights. Representing over four percent19 of the United States' total advertising market, and sitting at number three of the largest digital media businesses,20 it is expected that Amazon will command strong investment from Australian brands.

The most likely brands to be early adopters of Amazon Advertising are those whose product is stocked on the Amazon eCommerce site, in particular consumer electronic retailers.21Amazon’s entry is expected to increase investment in internet advertising.

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