Internet Advertising Analysis Part 18; Market Share and Concentration Data
IAB data seems to show that when it comes to Internet Advertising market share gains, bigger sites are best, but smaller sites seem better than the mid-sized ones. Over the past 10 quarters, smaller niche sites (the properties ranked 50+) appear to be holding on to market share. Over the same period, the top 10 sites gained share at an average pace of 3% per quarter, at the expense of the top 11–50 sites. Thus, we believe that obtaining a royalty on small sites’ revenue streams may be better than investing in the mid-sized sites or trying to pick the next big winners. Although the data do not paint a completely clear picture, it is our belief that niche sites will continue to gain advertising revenues on the Internet due to their targeted audience. We also believe that the efficiencies of scale in distribution, promotion, and other expenses will assist the top sites in maintaining their stature and share. We believe that going forward, niche sites may become more attractive relative to their larger portal brethren. As consumers spend more time on the Internet and bookmark certain sites that they use most frequently, they tend to bypass portals/search engines. The continuing growth in portal usage can largely be traced to the transition of new Internet users online. The table below shows that as Internet users spend more time online, they are bypassing portals more frequently.
Table 78 Percent of Consumers Bypassing Portals
A further reason for users spending less time at portals is that search engines are actually capturing less of the Internet’s content. NEC Research believes that portals are currently only indexing 16% of Internet content over 850 million pages. That percentage is down from 34% at the start of the year.
Figure 32 Niche Is Nice: Another Cut of Internet Advertising Concentration Data
Portals will, however, continue to receive a large share of Internet advertising in the future. Because they act as the directories of the Internet, one cannot ignore them. In fact, one of the principal reasons for advertising on portals/search engines is keyword searches. When a user queries Yahoo!, AltaVista, or any other search engine to look for something, the engine will return a list of possibilities. At the top of the page will be a banner ad based on the term searched for. When searching for “flower shops,” it is quite likely that a ProFlowers.com banner will be displayed. ModemMedia believes that click-throughs on keyword search banners are as high as 20%.
Figure 33 The Rest of the Net (Non - AOL and Yahoo!) Is Increasing its Share of Internet Advertising
In the Figure above, we see that Internet advertising appears to be fragmenting away from the two the behemoths of eadvertising AOL and Yahoo! As of 3Q99, the rest of the net had grown to 66% market share, significantly better than the 53% from 2 years ago (not to mention the 38% of nine quarters ago), although not much better than the 62% of a year ago. While the sequential market share numbers are bumpy, the slope of the line from 4Q96 to 3Q99 shows about a 2% share gain per sequential quarter going to non - AOL and Yahoo! sites. This helps both the buy-side and sell-side eMarketing companies that aggregate media on behalf of advertisers to create affordable “synthetic networks.” Initial indications are that 4Q99 advertising trends were very strong at AOL and Yahoo!, nonetheless the trend line shows a gradual shift away from these two behemoths of Internet Advertising. Media investors should not be surprised by the fragmenting trends of new entrants, as there are a number of historical precedents. Intra–medium, we find that new cable TV networks generally take share of usage and dollars from broadcast TV networks. Inter-media, we find that radio took share from print, TV took share from radio and print, and the Internet is taking share from TV, radio and print. New media fragments audience and advertising budgets for preexisting media. What Services Do E-Advertisers Require?
Forrester reports that the average online ad campaign lasts 10 weeks four weeks to plan and six weeks to run. It is our belief (and Forrester’s as well) that both sites and advertisers cannot handle this fast pace without the help of outsourcing service partners. As a result, online marketers surround themselves with an average of four external service partners to help manage online campaigns. Why is outsourcing necessary?
1. Advertisers and direct marketers face significant challenges, including their selection of sites. Given the breadth of content available on the Web, it is difficult for advertisers and direct marketers to justify the costs of transacting individually with a number of small but desirable sites in order to reach a large online audience. Advertisers and direct marketers also find that individual Web sites typically lack the technology to serve a variety of advertisements to a broad reach of Internet users. In addition, many advertisers and direct marketers lack the analytical tools to evaluate the effectiveness of advertising campaigns, target appropriate users, and place advertisements, all of which are necessary to obtain and compare performance from a variety of Web sites.
2. Web publishers/sites face significant challenges, too. Most Web publishers have difficulty attracting and maintaining experienced personnel to sell ad space on their Web sites. It can be difficult to gain access to media buyers at large advertising agencies for all but the largest Web sites. In addition, most Web publishers cannot afford (or deliver) effective ad serving technology and databases to offer serving, targeting, and reporting to advertisers.
Industry Forecast: Internet Direct Marketing & Advertising Services
We forecast that U.S. Internet Advertising will reach over $32 billion in 2005 representing a CAGR of 42%. At that time, we estimate that the Internet will account for 14% of all U.S. advertising, up from 3% in 1999.
Global Internet Advertising and direct eMarketing should be over $50 billion in 2005, up from $5 billion in 1999 a CAGR of 49%.
We believe the global addressable market of advertising and marketing services is much larger than many U.S. media followers currently believe. ½ List price CPMs (cost per thousand impressions) for the Internet will likely come down, but effective CPMs are reasonable compared to other media. Effective CPMs should go up as more inventory is sold and better comparisons with other media are made. Summary of Forecast We believe that worldwide Internet Advertising growth trends can be sustained at extraordinary levels for some time. We have developed a forecast for Internet advertising and direct marketing in the U.S., Europe, Asia, and Latin America, using internal Morgan Stanley Dean Witter Research forecasts, as well as external forecasts. We detail our U.S. forecasts below, but have limited our international forecasts due to a lack of data regarding international Internet usage and advertising.
Table 79 Global Internet Advertising and Direct eMarketing Summary
Continue with:
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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