As digital ad spend continues to grow, the IAB looks to collaborate with wider industry

Interactive advertising continued its upward trajectory, with the latest IAB/PwC online ad spend report showing that it generated a record $184.7 million in the second quarter of 2015. 

This marked a 30 percent year-on-year increase on the 2014 Q2 figure of $142.4 million, which was also up on the $120.6 million recorded in 2013

Across the various categories measured by PwC for the report, only the classified section dropped when compared to the previous year, slipping one percent year on year. Despite this drop, classified still held a 19 percent share of the interactive market.    

The biggest share was again maintained by search and directories (largely dominated by Google), which currently holds 57 percent of the market ($105 million) and increased 46 percent year on year.

IAB chief executive Adrian Pickstock says that the enduring appeal of search-based advertising is largely attributable to the fact that “it works.” He also says that this isn’t an anomaly in the local market and that international trends suggest that search will continue to grow over the next few years.

Brad Guthrie, the general manager of Search Republic, mirrors these thoughts. 

“We are still playing catch up with Australia and the UK, but we are now starting to close the gap,” Guthrie says. “More advertisers in New Zealand are investing more into it as it is still providing solid ROI for advertisers, plus they get 100 percent clarity of what results that investment produces.” 

The strongest performer was again the mobile category, which generated a $6.2 million lift—up 132 percent—from last year (however, this was off a smaller base). 

Mobile growth was largely attributed to smartphones, with phone-based advertising revenue increasing 189 percent year on year, compared to six percent year-on-year growth tallied for tablets.

These results aren’t all that surprising given growth has come to typify digital ad spend, with records being broken every time the results are released. However, when the annual ad spend figures were released earlier this year, display advertising was the only category to shrink, dropping from $130.6 million in 2013 to $127.5 million in 2014.

This was largely due to the frustrations advertisers had with banner ads that rendered poor click-through rates and added very little value to brands.  

At the time, Pickstock said this would eventually turn around as advertisers started to adopt native and video advertising. And this has now seems to be coming to fruition, with display advertising lifting 21 percent year on year.

“Display advertising is the fastest growing category in the UK, and New Zealand is tracking similarly,” says Pickstock.

He says that the increased adoption of programmatic advertising when combined with the the development of more interactive ads has led to brands spending more on display advertising.

As things stand, half-year revenues for the interactive category currently sit at $365 million, which is already more than the ad spend contributed by the radio, magazine or outdoor categories over the course of last year. And if the interactive category is able to maintain this momentum, it will be on track to overtake television as the category that contributes the most to annual ad spend in New Zealand.

Given that the digital ad spend has grown and accelerated so quickly over the last, is there any possibility of it reaching a plateau anytime soon?

“All we can do is look at international trends,” says Pickstock. “And we seem to be a long way from plateauing.”

Pickstock points to a ZenithOptimedia study that predicts digital ad spend increasing by 14 percent year on year for the next five to seven years. And this is further consolidated by a recent global study, also released by ZenithOptimedia, that predicts internet advertising spend will overtake television by 2018.

“By 2017, ZenithOptimedia forecasts desktop internet to account for 19.1 percent of global ad spend,” says the report. “Meanwhile mobile internet advertising’s share of the global ad market will rise from 5.7 percent in 2014 to 15.0 percent in 2017. Overall, internet advertising will account for 34.0 percent of global ad spend in 2017, slightly behind television’s 35.9 percent.”

In the local market, the report identifies online video, currently accounting for 20 percent of ad spend, as one of the biggest growth areas available to marketers. 

“Three out of four connected New Zealanders watch video online monthly and over half of these videos are watched on YouTube. Reaching over 60 percent of the population, YouTube’s audience reflects the demographic profile of the New Zealand population. Also reaching over half the population, Facebook’s mobile access (75 percent daily) is encouraging video creation and views through mobile devices. Video consumption via smartphones has increased 42 percent on last year. Users tend to watch short form videos as they are concerned with mobile data usage. The extension into longer form video through mobile devices is influenced by access through Wi-Fi. While they like the ad based ‘free’ model, 82 percent of smartphones users believe advertising should be tailored to their interests.”  

Not so positive were ZenithOptimedia’s predictions for the print industry:

“Print ad spend continues to decline across most of the world, as it has done since 2008. We predict newspaper ad spend will shrink by an average of 4.9 percent a year through to 2017, while magazine advertising will shrink by 3.2 percent a year. Their combined share of global ad spend has fallen from 39.4 percent in 2007 to 19.6 percent this year, and we expect it to fall further to 16.7 percent by 2017. At this rate of growth, internet advertising will overtake television in 2018.”  

While Pickstock admits that the growth of the digital channel throughout the world has come at the expense of traditional media channels, he doesn’t see digital in competition with the other channels. 

“We need to embrace the wider industry and grow total ad spend,” he says. “The IAB’s goal is really to collaborate across channels to increase the $2.4 billion ad spend pot.”

He says that most media companies today have an online presence, and that growing the digital channel will be good for the industry as a whole. 

In addition, he also says the IAB is looking to engage with those working in the industry to improve the reporting of the ad spend figures.

He says that there’s no limit to the granularity possible in the digital space, which makes it difficult to determine what should be included in the reports. 

“We need a consensus as to what we report,” Pickstock says. 

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