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4 Reasons Online Ads Will Grow and 1 Reason They Will Shrink

  |  April 18, 2014   |  Comments

Here are a few reasons why we should expect that online advertising will remain the top revenue channel for a long time to come, and one reason why it may not stay on top.

For the first time, ever, Internet advertising revenue has surpassed broadcast revenue. This is the news from a new report from the IAB and PWC.

I feel like this is something that we have been expecting for a long time. Internet advertising has been the fastest-growing sector of the advertising economy, but that's not that big of a deal. As I used to say when my kid was 2 years old, "He is the fastest member of the Stein family, but I still don't trust him with the car."

Now, though, Internet advertising is not only fast-growing, but also plain-old big (sort of like my kid now, actually). This year, evidently is the crossover year, though, where we get a whole lot bigger, and I think we can assume this trend will continue, for a few really compelling reasons.

As we watch the great fluctuations in the stock market and the wild excitement around start-ups and the growing excitement within the automation sector, let's look at what I think are some of the fundamental reasons why we should expect that online advertising will be the new king of the revenue jungle for a very long time.

"The Internet" Is a Pretty Loosely Defined Thing

Let's start with the most obvious reason why we should anticipate online ad revenues to grow: everything is turning into an online channel. When we think about the ads that are on Pandora - either within the audio stream or displayed in the interface - we think about them as online, not radio ads. Same thing with video ads on Hulu (not being TV) and display ads within digital magazines (not being print). With a blurring of the lines between traditional broadcast channels and online, online wins. It simply is able to absorb everything else.

Mobile Is a Part of the Online Mix

In the IAB report, one of the main stars of the show has been ads on mobile devices. Mobile is probably the newest fastest-growing part of the family. Spending on mobile ads shot up more than 100 percent last year and is projected to do the same this year. Driven by a massive increase in the number of smartphones available, mobile screens have become the must-have unit for advertisers. Also driving this spend is the ease with which brands can get their ads on mobile. Advertising on Facebook, for example, will easily get you into mobile, almost by default.

The Ability to Target Is Growing

We in the online advertising space have struggled with efficiency. We had a promise of perfect measurement in the early days, but that was a mirage. Too many people sold it in as a complete idea, but that was never the case. But today, with the huge amount of data coming in about consumers, coupled with tools that can actually manage the data, makes targeting a real option. This is a key part of the revenue growth because we need to be ready for a future advertising budget that is 100 percent measurable and totally targeted on generating new value. The path to that Utopia goes right through the world of data.

The Growth of Formats

Lastly, online advertising satisfies the advertisers never ending hunger for the new. We are always on the lookout for something, anything, that is unique and different. Something that we haven't seen before. Advertising online provides us with a great big world to explore. We are seeing ads that blend together devices or pull in personal data or allow collaboration and on and on. The mix of formats online continues to grow and, when a brand wants to do something innovative (which is, of course, all the time), they look to online. That will keep the revenue flowing in.

And now...just to keep things interesting, here's one issue that could actually hurt the growth of online ad revenue.

Too Much Consolidation

Right now, 10 companies control 71 percent of the online advertising spend. That's too much concentration among too few players. Those players are big and powerful and are locked in battle with each other to better (think Facebook versus Google). Even still, when there is this much consolidation, there tends to be problems in the marketplace. You can imagine that top 10 could quickly become the top eight or even six, as these companies decide to band together or even buy one another. That threatens to slow down innovation, as big companies tend to stick to what they are good at. Innovation is usually best done by small outside players of course, but we have seen a clear sign that the big guys are primarily interested in buying those companies up and integrating them into their whole (think of Instagram or Oculus being bought by Facebook). We need more of the wildness of the Internet to drive the next new things that are going to come.

Image via Shutterstock.

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ABOUT THE AUTHOR

Gary Stein

Gary Stein is SVP, strategy and planning in iCrossing's San Francisco office. He has been working in marketing for more than a decade. Gary lives in San Francisco with his family. Follow him on Twitter: @garyst3in. The opinions expressed in Gary's columns are his alone.

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