Advertising on the Net

The glut of free content in cyberspace has diminished its perceived value. Consequently, for the majority of entities in the business of disseminating content on the web, subscription income is not substantial. These entities tend to rely more on advertising income, and that has led to the expansion of the online advertising medium.

Then again, the growth of the medium, the intensity of competition among media owners, coupled with poor consumer response, has resulted in the decline in advertising rates.

Despite this decline, online advertising continues to thrive. Spurred by the shift from conventional media, advertising volume on the net is growing so rapidly that it more than compensates for the erosion in rates.

As always, market forces are fundamental to driving growth. Armed with smartphones, tablets, PCs and smart TVs, people are spending more and more time throughout the day on the internet. Businesses too are thriving on the internet where they are discovering value propositions that never existed before. Many B2B firms and small and medium enterprises that scarcely advertised on conventional media, are increasingly doing so on the net where they are better able to target their ad spend. Global consumer marketing companies too are shifting ad spend to where their consumers are hanging out.

Furthermore, as CPM (cost per thousand impressions) rates go down, publishers are compelled to put more ads on their site to breakeven/maintain profits. Needless to say, the number of sites and the quantity of content on the web is soaring. As a result, we are experiencing both an increase in demand and an increase in supply. What this clearly portends is that netizens shall continue to be bombarded with an ever-increasing slew of advertisements.

Online Advertising: Estimated share of global ad spend in 2021 by medium

Exhibit 13.12   Estimated share of global ad spend in 2021 by medium. (Source: Statista).

According to numerous sources, advertising spend on the internet overtook newspaper in 2013, and it overtook TV in 2017. As eyeballs continue to shift to online media (Exhibit 13.12), advertising spend on the net will continue to soar, driven primarily by mobile.

While its share is in decline, advertising spend on TV continues to grow, albeit at a much slower pace than online.

TV advertising is dominated primarily by big consumer brands that need to reach out to the masses. For the hundreds of millions of B2B companies, and small and medium enterprises that also need to connect with their customers, TV is less viable. With finely targeted customers in specialized categories, they rely heavily on direct marketing, and in the past, their advertising would be confined mainly within trade magazines.

The internet is the perfect medium for these organizations; it is where their customers have become accustomed to engaging with them, and where prospective customers, who may not have heard of them, can find them. Moreover, it helps save costs by cutting down on the traditional approaches to direct marketing — sales calls, mail, tradeshows etc.

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