Massive growth and opportunity ahead in online advertising

By October 1, 2010 4 Comments

The Lex column in the FT today has an article about Google which highlights the huge opportunities that still lie ahead in online advertising, including mobile.  We’ve been building this industry for ten years already and I’ve posted numerous market size updates on this blog over the years which all made the same underlying point – the online advertising market is very big and is still growing very fast – and I’m going to say it again today.image

The chart inset right shows that internet advertising is still a small percentage of the overall market – eyeballing the bars I would estimate around 15% and I fully expect that within 10-20 years it will eclipse all the others. 

I say that because all the other categories bar Outdoor are shifting from their traditional delivery medium to consumption over the web.  That shift opens up the potential for different forms of advertising that will be sold in different ways.  The most obvious differences will be more targeted and more interactive ads sold on a CPA basis or via exchanges, there will be multitudes of other ways that marketers dream up which take advantage of new possibilities to reach their customers – just look at the way they are rushing to take advantage of relatively new services like Facebook, Twitter and Foursquare.

You can argue the toss about whether it will be ‘television advertising’ or ‘internet advertising’ when it sits alongside television content that is distributed over broadband, but to me the real point is that if the form and the business model of the advertising both change then there will be opportunities for visionary companies to take market share from traditional advertising businesses that are slow to adapt.  Many of those innovative companies are likely to be startups.

The other interesting point that came out of the Lex article is the predictions for mobile search ads.  Lex forecasts that Google could be on an annual run rate of $450m in mobile search by December based on an average of 15 searches per month over 300m smartphones, of which 80% go through Google and monetise at $35/thousand searches (one third of what they get on the desktop).  That number of searches may well be right for December, but I expect it will go way way higher over time, particularly once Google Voice starts working well.  I think we are doing something like 30-50 searches per day on the desktop, and if mobile gets to anything like that level $450m per year will look like pocket change.