The Year Ahead in Internet: GroupM

11 Dec,2019

Global Internet Summary Internet-related advertising is now unambiguously the most important medium globally, with $326 billion in ad revenue during 2020, up from $294 billion in 2019.

Accounting for 52% of global advertising tracked here during 2020, digital is taking share of advertising in almost every country in 2019 and should do so in all of them in 2020. Digital should account for 34% of total advertising in the median country, illustrating further opportunity for growth. However, the weighted average is higher because of the relative importance of digital within larger countries, with digital accounting for more than 60% of total advertising in several markets, including China, the U.K., Sweden and Denmark. Share gains will rise beyond 2020, as global digital advertising should grow by high-single digits in subsequent years (following +11% growth in 2020, +15% in 2019, and +18% in 2018%).

Assessing market share estimates for key media owners is challenging.

Interestingly, the bottom-up (country-by-country) estimates for digital advertising tracked here amount to approximately $230 billion in 2019, outside of China. At the same time, we can see from public data that Google and Facebook are likely to generate somewhere around $175 billion on a net basis, or perhaps around $210 billion on a gross basis.

Other large sellers of digital advertising—including Microsoft, Amazon, Verizon, Twitter and Snap—will generate approximately $25–30 billion in digital ad revenue this year, and there are undoubtedly other sellers of digital advertising whose revenues would amount to at least that much.

Making detailed analyses of market shares will be subject to interpretation for several reasons:

Significant amounts of ad revenue in countries around the world originate in China (“the China export market”) and relate to international e-commerce sales from small businesses based in China. These activities may not be fully accounted for in individual country estimates.

:: Significant amounts of ad revenue are directed to countries such as Ireland— especially from small businesses—where many of the world’s largest digital media companies maintain European or international headquarters. It is possible that some of this spending will not be fully accounted for in individual country estimates either.

:: In some countries where digital spending is allocated to an owner of traditional media properties, digital activity is included in the traditional media line (our guess is around $10–20 billion in total), reflecting the often blurry nature of digital and traditional media. For example, in some countries, premium video delivered over internet-based connections may primarily sell through digital rather than traditional channels. In other countries, that same type of advertising may primarily sell through traditional channels.

Digital-first brands have driven much of the sector’s growth. As we imply above, much of the growth in spending on digital advertising in recent years has been driven by digital-first brands, whose own business growth rates should necessarily slow as they mature and see their growth rates converge with the rest of the economy. However, most large brands will continue to rely on digital media to supplement brand-building activities that are often centered on TV or other offline activities, focusing on the use of digital media to drive deeper engagement with consumers who may already have a view on what a brand means to them.

Of course, digital media has the capacity to build brands, subject to an appropriate creative strategy. Then again, ongoing challenges remain around digital media for brands, including the increasingly “toxic” environments of platforms that do not curate content or other advertisers, with the widespread availability of inauthentic content (including fake ads) and other polarizing or extreme content. Measurement remains another problematic issue, as fragmented, incomplete and often low-quality sources of data make it difficult to assess the metrics that brand-focused marketers want to rely upon in order to manage their budgets well in digital environments. The big question is whether or not brand building is the focus of brand owners into the future. It may not be.

Business transformation efforts from traditional brands will orient those companies’ media plans toward digital media. As brands increasingly invest in digital business strategies—business transformation, for lack of a better term—including direct to-consumer concepts, sales via third-party e-commerce channels, and focus on driving consumers to digital experiences (including websites or branded content), more growth in spending on digital media will occur. At this point in time, most brands generate only a small percentage of their revenues from e-commerce, but there are some brands pushing toward half or more of their revenues or consumer relationship activities from nontraditional environments, demonstrating possibilities yet to emerge. Of course, some categories will never be meaningfully digital (gasoline for automobiles is one example), and growth trends will not be evenly distributed around the world, as some countries will widely adopt new business models sooner than others.

What are the implications for marketers? One’s view on the pace and potential  scale of business transformation in a given country should inform one’s view on the future growth rate of digital advertising. If business transformation will be slow—whether because of friction in a country’s labor laws, lack of competition among companies in key sectors, or limited broadband access—digital advertising growth will be relatively slow. If business transformation is more rapid, growth in digital advertising will be more rapid. Arguably, business models might emerge because faster and cheaper mobile broadband services will contribute to rapid digital media brand interactions.

Where this is true, marketers will benefit from identifying preferred long-term media owner partners likely to have high-quality digital media inventory over a multiyear time period, as the most premium inventory will become scarcer as time progresses. On the other hand, in markets where business transformation is only going to move gradually— and where digital advertising growth is slower—securing long-term access to high quality inventory will be less important.

Global Outdoor, Radio and Print Summary Beyond TV and digital—which combine to account for approximately 80% of all advertising—other media face a general problem of simple math: An advertising economy growing at low- to mid-single digits, with digital growing at least twice that rate, does not leave much opportunity. However, other media may offer real benefits and maintain the potential for faster growth in the future than in the recent past, especially as they develop their own directly related digital assets.

Outdoor advertising is growing faster than the rest of the industry, aside from pure play digital media. Our updated estimates for outdoor advertising—a sector with $39 billion in global ad revenue during 2019—indicate growth slowing from +5.3% in 2018 to +1.8% this year, +2.5% in 2020, and 3–4% growth rates in most subsequent periods.

Importantly, these growth rates mask more robust health outside of the world’s number two and number-three markets of China and Japan: We estimate that on this basis the industry grew by +6.8% in 2018 and that it will grow +4.2% in 2019, followed by a year of +4.9% growth in 2020. Such levels represent a faster rate of growth than any other medium, outside of pure-play digital.

What is behind this trend? First, OOH’s effectiveness is relatively undiminished by fragmentation or ad avoidance. Second, owners of outdoor-related ad inventory have invested in digital infrastructure, including a capacity to better manage inventory and trade the medium programmatically. There is also widening availability of digital out of-home inventory from niche providers. This encourages a wider range of advertisers to use the medium and provides some confidence in the long-term opportunities to reallocate budgets within the medium more efficiently, at least where related real estate is constrained by local laws and regulations. Outdoor is also benefiting because there are many fast-growing marketers who believe the medium is a superior alternative to television when goals are focused around brand building and target audiences are in geographically narrow areas.

 

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