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Exponential growth of digital advertising

The world is fast moving towards digital advertising with the advent of technology. This has challenged older mediums such as print and TV advertising through an introduction of innovative strategies. The digital advertising surpassed TV in 2016 and is expected to grow at a CAGR of ~11% and reach $260 billion by 2020.

The recent growth in digital advertising was largely driven by the mobile advertising segment. This accounted for ~50% of the internet advertising revenue in the US in 2015 and the same is expected to grow at ~38% and attribute 64% in the total digital advertising revenues in 2016. The rapid increase in the mobile advertisement is driven by a higher smartphone adoption and higher content consumption assisted by improvement in network speed. 

This exponential growth can be attributed to the low and variable cost of digital advertising in comparison to other advertising platforms and increasing digital adaptability of consumers. Furthermore, the effectiveness of digital marketing is much easier to measure through the number of clicks and page redirect as compared to conventional mediums such as print and TV ads, where it is difficult to ascertain the impact in the absence of advertisements. In addition, digital marketing has evolved drastically in the past decade to help advertisers reach their target audience effectively by moving from geographic targeting (targeting online advertisement based on geography) towards socio-demographic targeting (targeting online advertisement based on age, gender, salary, nationality, etc.) and retargeting (displaying advertisement based on browser history and IP address). This transformation has made digital advertising more interactive in nature and has a higher probability of converting leads into actual customers.

Although there are several emerging online content companies, the revenue in digital advertising space is largely concentrated with the top players. The top 10 ad-selling companies account for 75% of the total revenues.

Google is an obvious market leader with a distant second competitor that is not even third of its revenue. This is primarily due to the near monopoly of Google in search engines with ~70% of the market share in the industry. Facebook and Twitter have steadily grown and improved their market share in the digital advertising as people spend more time on social networking sites.

The monthly active users are one of the most important metrics that attracts advertisers to specific websites. 

According to the above charts, Facebook has been catching up with Google in terms of reach (monthly active users), while its ARPU is much lower at almost one-third of Google. This is because search ads command higher rate as compared to display ads as a user looks for a specific information through a search engine. Therefore, chances of getting clicked are higher as compared to display ads where a user may not be as interested and thereby reduces the chances of getting clicked. Thus, Google being the market leader in search engine commands much higher ARPU in comparison to Facebook and Twitter. However, Google’s ARPU growth has slowed down considerably ~8% in contrast to Facebook ~45% and Twitter ~64%. Facebook and Twitter introduced features like ads integration in videos leading to higher ARPU in 2015. This trend is expected to continue in the future. Additionally, with the clear shift towards mobile, social networking websites stand to gain more as people may spend more time on these platforms, especially while travelling.

However, digital marketing has its own setbacks, the most significant being is the rise of ad blockers. Secondly, increasing use of behaviour targeting that focuses on browser history and buying behaviour of website visitors. All this has made the digital consumers concerned about being tracked, which has led to a higher adoption of ad blockers. According to Ooyala’s global video index Q1 2016, more than 200 million internet users used ad blockers which led to a loss of $27 billion for digital publishers. There is an increasing discomfort on the lack of privacy among digital consumers, this is bound to push these losses further unless digital marketers find a solution to the problem.

In conclusion, it can be stated that digital advertising, especially mobile has changed the relationship and interaction between advertisers, corporates, online content companies and the final consumers. Although there is a great opportunity for organic growth, it also offers inorganic growth opportunities via backward integration with content creation companies. In case such strategies are implemented much social networking sites may be affected by the merger of content creation companies and network service providers as free content and videos can lure the customers away from social networking.

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