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Digital Spend: The Multi-Billion Dollar Question

  |  September 20, 2011   |  Comments   |  

While the Microsoft, Yahoo, and AOL deal is an effort to combat Google and Facebook, a bigger issue needs to be addressed within the digital sector.

So Microsoft, Yahoo, and AOL have decided to get together on a new ad deal whereby remnant inventory from all the three networks can be sold by any of the three. There is also news of efforts to get other premium inventory partners to be a part of this new platform. Ostensibly this is being seen as an effort to combat Google and Facebook. But if you look behind the numbers, you'll see symptoms of a problem that is hidden and not spoken of.

Worldwide ad spending is expected to close at $497 billion USD in 2011, a jump of 4.5 percent over 2010. (Source: eMarketer, June 2011). Of this online ad spending is expected to be $80 billion USD or roughly 16 percent. Forecasts indicate that by 2015 online ad spending would account for about 21 percent of total ad spend. North America mirrors the trend with online ad spending currently accounting for 17 percent of total advertising spend.

By 2015, APAC would have a greater share of total media ad spend than the U.S. with online accounting for 18 percent of total spend. As any marketer or agency will tell you, while TV inflation is going up, there is no shortage of demand or viewership. It will take another 5 years at least for the larger markets like China and India to resemble as fragmented a TV market as the U.S.

In effect, the total digital pie is not growing as rapidly as many sages predicted years ago. It is unlikely to unseat TV anytime in the near future and in markets like Asia, even a gambling person wouldn't place such a bet. There are multiple reasons why this pie is not growing but there are two chief drivers.

The first is the idea of accountability. Ever since its birth, digital media have promised direct accountability. And hence they have always been burdened by the need to provide proof. Even in the current scenario, with the development of demand-side platforms (DSPs) and exchanges, the focus is on lowering acquisition costs and being more targeted. Where is the budget for all this addressable display coming from? It's coming from performance budgets; the big FMCGs are not curtailing their TV budgets in order to drive volume through digital display or online video.

The second relates to the idea of appointment viewing. In spite of all the fairy tale presentations on how consumers want to consume content on their tablets etc, the reality is TV still pulls in the numbers. There is something to be said for getting people to aggregate. And with TV producers willing to experiment and innovate with content, the opportunity to seriously engage audiences exists. Throw in Internet-enabled TVs and Facebook Connect, and you've got the ideal engagement scenario.

This is where digital media have lost out by not investing in content that can compete with other media forms. By focusing on technology and the ability to do things, like search or socialise, they have taken their eyes off the content ball.

Coming back to the MSN, AOL, and Yahoo deal, it is focused again on getting ad spend from a competitor. It would have made better sense for these three to understand that their competition is NBC, CBS, ABC, Fox, and others. An investment in content is probably going to pay off more than sharing remnant inventory.

It's time to move from science and accountability to understanding what consumers truly want: to be entertained.

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ABOUT THE AUTHOR

Arun Kumar

Arun Kumar is president of the Mediabrands Audience Platform (MAP) G14. He is responsible for supporting and driving the IPG Mediabrands digital practices that include Cadreon, Spring Creek Group, Ansible, and Reprise. Arun's remit will include these following countries: Australia, Brazil, China, France, Germany, India, Ireland, Italy, Japan, Mexico, Netherlands, Russia, Spain, and the U.K. Previously, Arun served as head of digital for Asia Pacific, overseeing Mediabrands' digital offering. He worked closely with all of Mediabrands' clients to create integrated and value-driven digital strategies across Asia Pacific. Arun's intimate understanding of the digital space has made him the ideal team member to lead Mediabrands' 100 percent digitally-focused culture. Arun brings more than 12 years experience in driving digital development in the region.

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