Mobile Ad Spend Is Starting to Look Like Serious Money

Internet advertising experienced double-digit growth in 2012 for a record US$37 billion in revenue, according to a report this week from the Internet Advertising Bureau (IAB) and Pricewaterhouse Coopers. The largest increase was in the second half of the year, where both the third and fourth quarters topped previous records.

Interactive ad revenues for the third quarter totaled $9.24 billion, then revenues reached $10.31 billion in the fourth quarter, an 11.6 percent quarter-over-quarter gain.

“The fourth quarter had the best quarterly results ever for U.S. interactive advertising,” said Sherrill Mane, IAB senior vice president research, analytics and measurement. “We continue to set records and continue to outperform the media market.”

The $36.6 billion in Web ad revenue — which included mobile — was second only to broadcast television, which accounted for $39.6 billion in revenues for 2012. Cable television trailed Internet with $32.5 billion in revenue.

Retail is king when it comes to digital advertising. The category accounted for 22 percent of Internet ad revenues. The spend was followed by financial services (13 percent); telecom (12 percent) and automotive (11 percent).

An All-Time High

The annual report often shows gains in Internet ad revenues. However, while the 2012 Summer Olympics and a presidential election could have contributed to the numbers, the IAB believes the figures point to more fundamental changes taking place in advertising.

“There is a shift of brand dollars happening,” said Mane. “The election and Olympics were not the primary drivers of interactive ad revenue. We didn’t really see any indication that those are two big drivers here.”

More record-breaking revenue may be on the way, said Manish Kacker, associate professor in strategic business marketing at McMaster University DeGroot School of Business.

“The significance here of the ‘record’ growth arises from the fact that it is occurring on a relatively larger baseline revenue number. In other words, the ‘law of large numbers’ has not yet had a big impact on Internet advertising revenue growth,” Kacker told the E-Commerce Times.

The gain in Internet revenues on broadcast television are likely to close over time, but still have a ways to go before the channel dominates all categories.

“TV advertising revenues are a little less than double Internet advertising revenues, and are growing at about 3 percent,” he said. “Assuming that the current growth trends will continue, it will still be a number of years before Internet surpasses TV in advertising revenues. The relationship between Internet and TV advertising cannot be characterized by simple, zero-sum competition. A lot of gains of Internet advertising have occurred at the expense of print and radio rather than TV.”

Television and the Internet help each other’s advertising revenues. “The symbiosis between TV and internet advertising is reflected on the fact that broadcasters advertise extensively on the Internet, resulting in increases (or reducted declines) in their own viewership and advertising revenues,” Kacker said.

The boundaries between TV and Internet advertising will become less clear, he added, “as broadcast networks continue moving to multiplatform broadcasting and capturing advertising revenues from broadcasts viewed on internet devices.”

Mobile Momentum

Mobile nearly doubled its slice of the pie in 2012, growing from 5 percent to 9 percent. Revenues in the category, which includes mobile search, reached $3.4 billion, up 111 percent from $1.6 billion reported in 2011.

“Mobile has experienced triple-digit percentage growth each year since we started capturing it in 2010,” the IAB report said.

“It grew more than 100 percent year-over-year, so it’s more than doubled from last year,” Greg Sterling, principal analyst at Sterling Market Intelligence told the E-Commerce Times.

“I think what it reflects is that marketers are starting to take mobile very seriously,” Sterling said. “Consumers are way ahead of marketers. Mobile usage is much higher than the ad spending, and marketers are very much catching up with consumers, and that’s going to be true for the next couple of years.”

The overall interactive advertising growth numbers are masking mobile’s real growth in the market, Kacker added. “This rapid growth in mobile advertising revenues is likely to continue due to increased penetration and use of smartphones and tablets by consumers, the ongoing development of mobile advertising infrastructure (e.g., mobile ad exchanges) and the use of more personalized and location-based advertising by mobile advertisers.”