Online advertising to boom

The continued migration from TV and newspapers to online advertising by business is set to double the value of Australia’s online advertising sector over the next five years, from $510 million in 2009 to close to $1.2 billion in 2014.

The sector’s value grew by 19% in the 2008-09 financial year, despite businesses cutting their online marketing costs due to the global economic downturn, a Frost & Sullivan report released yesterday found.

“Although 2009’s overall growth is slightly down when compared to the 22% increase in 2008, it’s still a very strong result given the economic environment,” Frost & Sullivan senior research manger Phil Harpur told SmartCompany.

“Businesses and ad agencies that are slow to adapt will be forced to reevaluate their budget allocation to achieve their marketing goals,” Interactive Bureau of Australia chief executive officer Paul Fisher says. “That’s nothing different from what is happening now but it will accelerate.”

For businesses with an online budget, the most popular ads were display ads such as banners, skyscrapers and pop-ups, with 59% of companies making purchases in 2009, although this fell from 64% the previous year.

But use of online video advertising grew, surging from 17% in 2008 to 25% in 2009. In addition, 49% of companies used e-newsletters in 2009, up from 39% in 2008.

The amount of money spent on email direct marketing grew by 20% from 2008 to 2009. This segment has been much more shielded from the downturn than other segments such as banner advertising, Harpur says.

Just over half of companies – 52% – purchased email direct marketing in 2009, a 2% drop from the previous year.

Online video

But the amount of money spent on online video advertising is set for the strongest future growth. Video advertising made up 4% of all online ad revenue in 2008 but that is expected to grow to 14% in 2014. “This is significant, although it comes off a relatively low base,” Harpur says.

Businesses looking for alternatives to the more established and mainstream online display ad market will drive this growth, the report says.

But the national broadband development will be “absolutely key to the growth of online video advertising in the near future,” Fisher says.

“There’s a general perception at the moment that broadband doesn’t allow video advertising to be downloaded fast enough.”

Mobile advertising

The report found the Australian mobile advertising market remains at a “very nascent stage”.

But the market is set for strong future growth: its value is forecast to grow to $150 million by 2014 at a CAGR of around 82%. The mobile advertising market’s value rose by 88% from $4 million in the 2008 financial year to $7.5 million in 2009.

“In three to five years, we will see mobile advertising as a mainstream alternative to print and broadcasting,” Harpur says.

“Once there is a critical mass of smartphones in the marketplace, especially the type with touchscreen functionality, as seen in the Apple iPhone, the market is set to really take off.”

But a lack of sophisticated targeting and personalisation of mobile advertising is holding back further growth, he says.

“Mobile advertising is still a very underdeveloped market. It is still dominated by the major carriers, because they control the access device: they control the networks so they control most of the advertising. This is why the Australian market is lagging behind the US, for example, in terms of mobile online ads as a percentage of all online revenue.”

Budgeting

The effects of the global economic downturn will continue to hold back businesses online marketing until mid-2010, Harpur says.

But business’s online budgets have been less affected than their budgets for print and broadcasting ads.

Just 26% of companies increased their online ad budget in 2009, compared with 40% in 2008. In contrast, 15% decreased their budget in 2009, compared with 5% the previous year.

“This spending would be higher if not for a general lack of understanding and awareness – and in particular on the client side – which is holding back faster growth in the sector,” Fisher says.

“We’re finding there’s a lack of understanding and awareness in particular on how this new platform can be used in complement with other media. It’s not that TV and newspaper ads are going to go away but that you can get a much more powerful message by working across platforms.”

“Business owners should be aware of this. It’s really a matter of looking at case studies and research projects that show the results [of online advertising]; particularly those covering cross platform advertising.”

The report surveyed 220 senior management executives with control over a company advertising budget of more than $1,000 per annum. It covered industries including banking and finance, travel and hospitality, media and entertainment, automotive, IT, telecommunications and retail.