As budgets dry up online looks up
Despite the global financial slowdown – as nice a way of saying ‘global recession’ as anybody and CNN has been able to come up with – at least one marketing medium will expand its share of the revenue pie, even as others prepare to face cutbacks and closures.
After online ad revenue grew 24% in 2006, 27% in 2007 and 32% in 2008, World Wide Worx researcher Arthur Goldstuck predicts it will grow 32% in 2009. This will see revenue jump from R319 million in 2008 to R419 million this year.
An informal survey by AdReview of members of the Online Publishers Association (OPA) reveals similar optimism. Members forecast that online’s share of advertising expenditure will double from the current 1.5% to 3% by the end of next year, 7.5% by 2013 and 13.7% by 2018. Interestingly, the survey showed that while there seems to be wholesale agreement on the decline in the percentage of ad spend going to TV, cinema, direct mail and print, increases are expected for radio and outdoor.
This trend isn’t only a local one. Globally, eMarketer.com notes that revenue for the US newspaper industry declined 16.4% in 2008 to $37.9 billion. By 2012, spending will slide to $28.4 billion. Yet most researchers predict growth in global online spend this year of between 3 and 15%. And a survey by PermissionTV of 400 senior-level decision makers in the US marketing and media industry revealed that they believed their digital marketing efforts to be least affected by budget cuts.
While growth will continue, it should be noted that forecasters have indicated that the pace of growth will slow. Most analysts have already adjusted their predictions downward to take into account the global crisis.
Henry Blodget, a senior Internet analyst at Merrill Lynch, notes on news site CNet.com that, historically, advertising spending on “new media” does not decline before, during, or after recessions, it simply grows less quickly than during normal years. “This trend was clearly visible in the growth of television advertising during the recessions of the 1950s and 1960s, and in the growth of cable advertising during the 1990s. One explanation for this effect is obvious: during the development phase of any industry, there are two main revenue growth drivers: new buyers and increases in spending by existing buyers.”
New buyers will continue to come online and online budgets in South Africa are expected to increase this year because of the Net’s accountability, lack of wastage through effective targeting and user interactivity. Also don’t forget 2010, when the World Cup will mean increased spend in sectors using the online market, including the hospitality, communication, travel and tourism and car hire industries, not to mention the actual sponsor brands. International accounting firm Grant Thornton estimate that 483 000 foreign tourists will visit the country during the World Cup. The Net will be a primary vehicle for research and communication for these visitors.
“I believe there will be multiple reasons why we’ll see an increase in online ad spend,” says Diane Charton, Managing Director of Acceleration Media, a South African online media planning company. “I think that the measurability of the medium and the ability to track and monitor ROI will become more critical for marketers as they need to ensure their money is working that much harder for them. As a medium, online provides this, and as more marketers begin to understand this and are educated about the opportunities and benefits, I believe we will see greater investment of their marketing budgets.”
Charton believes that many local marketers have been using the medium effectively and understand the metrics involved. These are the marketers and businesses who have developed models that measure ROI and show the proven value of the medium.
“We are also seeing increasing pressure coming from international elements within an organization questioning the lack of online in the marketing plans and strategies,” says Charton. “I think this will further force marketers to become educated on the medium, understand the potential value for their organizations and utilize the medium.”
Online consumers meanwhile are expected to spend more time online researching purchases, seeking out special deals, the best prices and comparing product features.
OPA members expect dramatic increases in the time spent online and time spent gaming. They expect moderate growth in time spent listening to the radio. However, they expect a decline in time spent watching television, going to the movies (in spite of a growing middle income segment), and reading of magazines or newspapers.
A number of factors are working in favour of online. Affordable broadband is finally set to take off during the course of 2009. Growth will be stimulated too by the arrival of Seacom, which will relieve congestion on the SAT-3 cable, networks laying fibre networks in major metropolitan areas and the EASSy cable connecting up in 2010. This in turn will see bandwidth limitations diminish and user engagement increase.
“The Internet usage and activity boom of 2006-2008 will flatten in 2009, but easing of broadband limitations and international interest in 2010 will compensate,” says Goldstuck’s State of Online Media in SA report. In 2008, 4.5 million South Africans were connected online (a figure expected to grow to 5.1 million in 2009 and 8.4 million by 2013), 1.05-million of them already have access to broadband.
South Africans are also flocking to social media applications like Facebook, MySpace and Twitter and this is driving increased openness to and comfort with online interactivity. It’s not all plain sailing, though – Goldstuck’s research shows an ‘Experience Curve’, which reveals that the average Internet user needs to be online for five years or more before engaging actively with high-level applications like online retail and interactive applications.
“The Experience Curve means that new users will still take five years to be integrated,” says Goldstuck, “meaning that the have-nots are more than ten years away from Internet integration – for online media, an ongoing growth path.”
By MarkLives editor Herman Manson
From Tony Koenderman’s AdReview, published with Finweek, May 1, 2009
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