Advertisers feel the pressure from digital transformation
Amid growing debate as to whether brands are overspending on digital media, Zenith research has found that the effectiveness of internet advertising has now caught up with digital adspend.
Until 2015, brands struggled to make effective use of internet advertising, and their spend was not matched by the resulting ‘brand experience’ (an accurate proxy of market share*). However, by 2016 internet advertising accounted for 34% of global ad budgets but produced 35% of brand experience. Internet advertising is now therefore working harder than advertising in other media.
For many years Zenith’s Advertising Expenditure Forecasts reports have consistently reported sizeable increases in the internet share of advertising budgets. The December 2017 edition of the report is published today. For the first time Zenith has been able to demonstrate the ROI of internet adspend, not just its scale. We used our proprietary Touchpoints ROI Tracker** tool to compare internet adspend to internet brand experience over the past few years.
In 2014 advertisers spent 27% of their budgets on internet advertising, which produced only 21% of brand experience. By 2015, though, brands were using internet advertising more effectively: it accounted for 30% of both budgets and paid brand experience, before tipping over in 2016, when brand experience exceeded budget share.
We expect internet advertising’s share of global adspend to continue to rise, reaching 40% in 2018 and 44% in 2020. Its value will rise from US$203bn in 2017 to US$225bn in 2020. The share of advertising expenditure allocated to internet advertising varies widely across the world. In the most advanced markets (Sweden and the UK) it will account for more than 60% of total expenditure next year, and it will account for between 50% and 60% in another six (Australia, Canada, China, Denmark, Norway and Taiwan).
In the US, internet adspend will capture 35.1% of the market in 2017, nearly at the global average. We forecast 14.6% growth in internet advertising in the US in 2018, compared to 3.5% growth for the market as a whole. By 2020, internet will account for 44.6% of total adspend in the US, slightly above the global average of 44%.The US is therefore a leading digital market for growth in internet advertising.
The rise of the internet has had huge consequences for the other media, which are covered in detail in the executive summary.
Big platforms are capturing digital growth
The internet is driving the great majority of global growth in advertising – it will account for 94% of the growth in adspend between 2017 and 2020. And most of this will be captured by just five big platforms – Google and Facebook, plus the Chinese platforms Baidu, Alibaba and Tencent. Between them these five platforms increased their share of global internet adspend from 61% to 72% between 2014 and 2016, and captured 83% of the growth in internet adspend over that time. Baidu, Alibaba and Tencent accounted for 54% of the growth in internet adspend in China, while Google and Facebook accounted for 96% of the growth in internet adspend in the rest of the world. Between them Google and Facebook accounted for 76% of internet adspend outside China in 2016.
Big countries are adding most ad dollars
In dollar terms, most of the growth in global adspend is coming from a few big markets. We forecast that just two countries – the US and China – will contribute 47% of new ad dollars between 2017 and 2020. The five biggest markets – the US, China, Japan, the UK and Germany – will contribute 57%.
Big cities are driving global adspend growth
Big cities are driving global adspend by concentrating growth in productivity, innovation and trade. We have conducted a unique study that attributes adspend to individual cities by estimating the value of their inhabitants to local, national and international advertisers. We forecast that the top 10 cities alone will contribute 12% of all global adspend growth this year, and that the top 725 will contribute 60%.
We predict that between 2016 and 2019, adspend in the 10 biggest-contributing cities will grow by a total of US$7.5bn, representing 11% of growth over these years. These ten cities will be, in descending order: New York (where adspend will grow by US$1.4bn), Tokyo, Jakarta, Los Angeles, Shanghai, Houston, Dallas, Beijing, London and Chicago (which will grow by US$0.6bn).
Advertisers feel the pressure from digital transformation and polarisation of growth
Advertisers are feeling pressure from the rapid transformation of their businesses, exemplified by the rapid shift of marketing communications to online media in response to changing consumer behaviour, and the polarisation of growth to big platforms, big countries and big cities. At the end of November we conducted the third in our series of exclusive surveys about brand growth among key Zenith clients. On a scale from 0 to 100 – where 0 means everyone expects decline in 2018, 100 means everyone expects growth, and 50 means the average expectation is for no growth – the average response was 57, down from 67 this time last year. Food and drink brands have been the least affected, with a score of 66 this year, down just a point from 67 last year. Packaged goods, retail and telecom brands have all fallen to 50, expecting no growth, down from positive scores last year.
“We are seeing a battle played out in business, marketing and media between big players and small players,” said Vittorio Bonori, Zenith’s Global Brand President. “Growth is coming from big countries and big cities, and being captured by big platforms. Brands should focus on upstream strategy, data-informed UX planning and downstream automation”.
“The fact that half of the top 10 cities contributing to growth in global adspend are US-based is indicative of the reality that there’s significant momentum in the US market right now,” said Sean Reardon, CEO of Zenith USA, Moxie and MRY. “In accordance, we are increasingly pioneering the development of new technologies, tools and technique that serve as market differentiators in the US and an incubator for the rest of the world.”
“Internet advertising is the biggest advertising medium in the world and the biggest driver of growth,” said Jonathan Barnard, Head of Forecasting and Director of Global Intelligence at Zenith. “Our unique research shows that brands are starting to use it effectively after struggling to adapt over the last few years.”
*Brand experience is a combination of two factors: reach (how likely consumers are to encounter brand messages at each touchpoint) and influence (how likely each message is to consumer attitudes or behaviour). It covers all touchpoints across paid, owned and earned media, but because we were comparing it to advertising expenditure, here we measured only the brand experience of paid media.
**Touchpoints ROI Tracker is Publicis Media’s brand contact measurement and planning tool, based on more than 950,000 consumer interviews since 2004.
All rights to the MCA® measurement system including CCF™, BEP™ and BES™ are owned by Integration (Marketing and Communications) Limited and licensed to Publicis Media Limited and its affiliates