Internet Advertising Analysis Part 17; Inventory and Concentration
Of course, as Internet penetration pervades the U.S. and the rest of the world, its very success will dilute the demographic wallop, just as it did for television and radio decades ago. Higher levels of penetration mean access to larger marketing budgets, however. For example, many cable networks are now national, and in addition to increasing their penetration to more than 70% of U.S. households, they have benefited from a disproportionate increase in advertising market share. Of course, some cable networks still suffer from not being national enough for some advertisers.
Figure 29 Unsold Inventory Estimates (1999)
Where Are Advertisers Advertising? The number of Web sites is growing at a torrid pace … and more are coming. At the end of December 1999, the number of Internet sites accepting advertising reached 3,347 (according to AdKnowledge).
Figure 30 U.S. Per Capita Demographics
With all of these sites, it is not surprising that some observers estimate that over 80% of all available Internet advertising space goes unsold and that even the biggest publishers only manage to sell a minority of their available inventory. We think this analysis is flawed, since it is based on the proposition that the remaining 20% is sold at its full, list price. The majority of the sites we go to have advertisements on more than every fifth pageview. If we reversed the argument and assumed that list prices are discounted by 80%, then 100% of the inventory could be considered sold. This is probably closer to reality than the argument that 80% of Web sites have no advertising.
Table 76 Top Web Properties (March) Ranked by Advertising Impressions in Millions
The absolute number of advertising-supported Web sites is expanding. However, the concentration of ad spending continues to consolidate at the top sites. eStats projects that the average ad-supported Web site received about $570,000 in advertising revenues in 1999. Conversely, eStats calculates that the top 10 Web publishers’ sites each raked in an average of $193 million from Internet advertising. This trend of advertising concentration at the top sites is only getting more pronounced. According to the Internet Advertising Bureau (IAB), the top 10 Web publisher’s sites accounted for 69% of ad revenue on the Web in 2Q97. By 3Q99, the top 10 sites’ share of ad revenue had grown to 72%. Web properties that are classified as numbers 11–25 lost share in the same period, falling from 17% of Internet advertising revenues to 12%. Likewise, properties numbered 26–50 also lost share, from 7% to 3%. Sites numbered 51 and over gained share, going from 7% of advertising revenues in 2Q97 to 13% in 3Q99 (their share during the period reached as high as 21% in 1Q98). The number of unique visitors determines the top sites. Although the list of top sites changes based on the number of visitors recorded each month, the top 10 sites have established a relatively dominant position in the industry.
Figure 31 Concentration of Internet Advertising
Portals, often top-10 sites, have been leading the pack in terms of advertising revenue generation. eStats estimates that in 1998, portals captured 49% of all Internet advertising. Specialty content sites captured about 20%, general content providers received 18%, and all others earned 13%. We don’t expect portals (as traditionally defined) to continue to dominate advertising spending on the Internet. Currently, portals are re-inventing themselves as destination sites for shopping, trading, and doing remote tasks, rather than simple search engines or site organizers. This should help them to maintain their dominant position as receivers of advertising.
Revenue trends at niche sites may be nice, too but can they get big enough to make their business models work? In addition to the top sites, advertisers have also been spending on niche content providers. These sites have demographics that appeal to particular advertisers. Financial news sites in particular have been beneficiaries of this trend. Yet it is not clear that these smaller sites can reach the size where their business models will work. The ad networks may be a good way to ride the revenue growth of this category of sites.
Table 77 Internet Advertising Spending by Genre
Continue with:
Part 18; Market Share and Concentration Data , Part 19; Global Impact, Part 20; Residential and Business Use ,
Part 21; Pageviews , Part 22; Advertising vs. Direct Marketing , Part 23; Investment Conclusion
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