Internet advertising: a $50bn opportunity?

Has Internet advertising peaked? Not according to figures recently released by Morgan Stanley. In fact, far from being saturated, the online advertising market represents an unrealized opportunity.

Figures collected by Mary Meeker, managing director and leader of Morgan Stanley's global technology research team, draw comparisons between the percentage of time spent by audiences perusing particular types of media, and the percentage of advertising spend devoted to those media. You can watch her presentation of these stats at the Web 2.0 Summit 2010 on YouTube.

One-eighth of the US audience's time is spent reading print media, and yet a quarter of the advertising spent goes on ink. 31% of the audience's time is spent watching TV, while 39% of advertising dollars are spent courting these viewers, representing yet another oversubscribed market. Conversely, 16% of media consumption time is spent listening to radio, while only 9% of advertising dollars are spent there, she said.

But internet advertising represents the biggest disparity: 28% of media consumption time is spent online, but only 13% of advertising dollars are spent there. According to Meeker, this equates to a $50bn global opportunity.

This advertising gap is compounded by the lack of relative innovation in advertising. It's true that we have seen some highly successful viral campaigns from brands such as Old Spice, but according to Advertising Age, the top 25 advertising campaigns in the 20th century were all offline. "Where are the great online ads? Apple/Google/Yahoo!/Facebook/Twitter and others say "Watch this space", says the Morgan Stanley slide deck.

The age of modern online advertising is purely a 21st century phenomenon, however, and the signs are that modern advertising will excel in areas that simply didn't exist in any meaningful form during the last century. For example, social networking currently garners 27% of all US online display ad units, says Morgan Stanley. Significantly, however, it offers the smallest returns in terms of CPM (the cost per thousand views of a online advertisement). This indicates that social networking is a market with huge advertising revenue potential in a larger market that is itself underexploited.

The mobile advertising market is also likely to yield high rewards in the next few years. Meeker suggests that smart phone sales will overtake total PC sales as early as 2012, trumping suggestions by other parties earlier this year that 2015 would be the inflection date. We are already seeing Apple pursuing advertising opportunities with the iAd platform introduced in iOS 4, and location-based services are also likely to play a big part in what's coming. With 'check-in' location-based sites such as Gowalla and Foursquare gaining traction, we can expect the intersection between mobile and social media-based advertising to be a major vector.

This is the kind of industry that the characters in Mad Men could only have dreamed about. And it's the kind of industry that any company wanting to reach its customers as effectively as possible cannot afford to ignore.

Anthony Plewes

After a Masters in Computer Science, I decided that I preferred writing about IT rather than programming. My 20-year writing career has taken me to Hong Kong and London where I've edited and written for IT, business and electronics publications. In 2002 I co-founded Futurity Media with Stewart Baines where I continue to write about a range of topics such as unified communications, cloud computing and enterprise applications.