By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street
You might think you never look at these ads or click on them, and you might think they’re the biggest waste of money there ever was, but reality is that internet advertising revenues in the US are surging, and are blowing all other media categories out of the water. But only two companies divvy up among themselves nearly 60% of the spoils.
Internet advertising revenues in the US soared 21.4% in 2017 from a year earlier to a record of $88 billion, thus handily demolishing TV ad revenues, which declined 2.6% to $70.1 billion, according to annual ad revenue report by the Interactive Advertising Bureau (IAB).
It was the second year in a row that internet ad revenues beat TV. In 2016, internet ad revenues (or “ad spend”) had surpassed TV ad revenues for the first time in US history.
And 2017 was the first year in the data series going back to 2010 that TV advertising actually declined. That formerly unstoppable growth industry is now a declining industry.
Of the $254 billion spent on advertising in 2017 in the US, online ads obtained a share of 35%. In the chart below, there are two big media categories: Internet and TV. The rest are also-rans. Newspapers (print) are still on the list, if in much diminished form, down about 25% from 2010, but still nearly double the ad spend of OOH (out-of-home advertising, such as billboards, ads inside public transit, etc.):
Why is the Internet So Successful in Attracting the Big Bucks?
Read IAB’s explanation carefully because it discusses what happens with your personal data, which is precisely makes internet advertising so appealing to advertisers:
Current technological advances in big data, predictive analytics, artificial intelligence, and robotic process automation (RPA) have all greatly impacted the industry and will continue to do so for the foreseeable future.
The volume of digital data being created on the internet is increasing exponentially. Every year the digital universe doubles in size with many estimates indicating a 50X growth between 2010 and 2020 [“Inside Big Data, Exponential Growth of Data,” February 2017].
These large volumes of data provide the raw ingredients to enable greater advertising efficiency. The ability to apply analytics and AI to massive volumes of data enable marketers to target end users in ways not previously possible. Furthermore, these same advances when combined with RPA have allowed for increased automation throughout the ecosystem – driving further efficiencies.
Mobile is hot. Internet advertising on mobile devices surged 36.2% in 2017 from a year earlier to $38.1 billion of the $88 billion in total internet advertising.
Among the major internet ad formats, search ads – hello Google – get almost half the share to total spending:
- Search ad revenues +17.5% to $40.6 billion (46% share).
- Banner ad revenues +23% to $27.5 billion (31% share)
- Video ad revenues +33% to $11.9 billion; all of that growth came from mobile devices, up 53% to $6.2 billion; there was no growth on PCs.
- Other (lead generation, audio, classified, etc.) +19.2% to $8 billion.
Social Media sizzles, fake news no problem. Advertising spend on social media surged 36% from the prior year to $22.2 billion, now accounting for a quarter of all internet advertising, up from just an 8% share in 2012.
But Who’s Getting All This Internet Ad Manna?
The report is presented at an “anonymized aggregate level,” and no company names are given. But it’s not hard to figure out. The top ten companies got 74% of the share in Q4 2017, according to the report.
For further detail, we mosey over to eMarketer, which estimates that in 2017, Google captured 38.6% of the total internet ad spend in the US and Facebook captured 19.9% in the US, for a combined total of 58.5% of total internet ad spend. Just by these two companies!
For perspective, Google’s parent Alphabet reported global revenues of $111 billion in 2017, and Facebook $40 billion. Practically all of it was generated by internet advertising.
eMarketer expects Google’s and Facebook’s respective share of total ad spend to decline slightly going forward, even as their dollar ad revenues continue to rise, but more slowly than the overall market. They’re under pressure from some newcomers and smaller giants, so to speak, and from Amazon which is muscling into this space and is expected to carve out over $2 billion in 2018, and more in 2019, providing further excitement in future years.
E-commerce sales are soaring, but only about half of retail is under attack from e-commerce, and that half is getting crushed. Read… Brick & Mortar Meltdown Pummels These Stores the Most
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And people say that the 50s and the 60s were the Golden Age of Advertising! I am not sure here if it is so much a matter of the Big Bucks as rather what my brother calls the Fast Bucks. You can almost smell the greed in the ads themselves.
As Jaron Lanier said in the early 00s when the internet/advertising juggernaut was being touted as a universal bringer of good things and a panacea for all the world’s ills: “Funding a civilization through advertising is like trying to get nutrition by connecting a tube from one’s anus to one’s mouth.”
H G Wells said it best way back in the twentieth century: “Advertising is legalized lying.”
So, no problem with “fake news” at all. It’s all fake.
One day I buy sneakers online. The following days, any internet page with adds will show me sneakers to buy. Little bit late, I think. Do you believe I will be buying sneakers every day for the rest of my life?. Is this big data? Intelligent advertising?
I’m sure the old advertising adage ‘50% of all advertising money is wasted, the problem is, nobody knows which 50%’ applies to online advertising.
Possibly because I do my best not to be tracked, I find the advertising that follows me to be often quite funny as it gets me so badly wrong. Right now I’m followed by ads on my work pc trying to rent me office space. I’ve no idea why.
What I have found (in B2B mode) is that to convince retailers to stock a product, you have to promise an advertising spend; good display at retail is what really creates sales, so even if the online advertising is found not effective by analysing click-through metric afterwards, the crucial hurdle of retail distribution happened much earlier! Plus it’s easier to produce a ‘good-enough’ online advert than a TV spot.
Now, advertising is a notoriously economy-dependent source of revenue: does that make FB et al. cyclical rather than a growth stocks?
Someone at your company are looking at office space – to rent or to hire out? Better update that linked-in profile :)
The add-pushers are selling adds. They don’t care if the add’s work, whether you buy the sneakers or not. It is plenty enough that the add’s appear to work to move the needle on the sales.
So they like to present some truthful statistics like “… 80% of the people we served this highly targeted add bought the sneakers …”
That you bought the sneakers before the add just makes their performance-metrics much more reliable!
Thank you fajensen! I see the point. Is there any metric on advertising expenses and marketing results by different kinds of media?
I think it is triggered more by having looked at the sneaker website than the action of buying. I don’t think they know you bought something, just that you are looking at it. So they target people who looked at sneakers as potential sneaker buyers.
No worries, we’ll recoup the advertising cost by laying off labor.
New technology: Predicting your needs, not resounding the them.
The research which interpreters your sub-vocalization is obvious the way to go. As soon as the thought is formed, you are
besiegedoffered ads for the product.How to develop a mechanism to make you want to give away your thoughts?
The incentive to be that forthcoming would have to have something concerning sex…./s
In summary:
(1) Fake news works — financially.
(2) With such stunning financial success does anyone believe the junk mail platforms will make any change* that threatens their revenue stream?
* To reduce fake news, reduce addiction, improve search, clearly mark paid-for political ads, or any more positive social good…
Break them up.
In addition to fake news there are fake clicks and fake stats: in particular when entering a web address in my browser, I am often taken to Google or Bing first. This makes it look as though I arrived through ‘search’ but it is not true; then when I’m on a page, the design is such that I am taken to an advert without intending this; or the pop-up is so intrusive that I right-click on it and open it in another tab, just to get rid of said ad…
Take away their ability to collect data and you let the air out of this balloon. The advertisers are buying the access to your data. I’ve never followed Internet advertising, not on Facebook, not a banner ad, not a Google ad, not on YouTube unless it was accidentally. But they still get all the data on what I’m doing. I don’t know what good it does them though, I live in Uruguay for goodness sakes.
The import tax is 22% and getting through customs is difficult. I don’t think very much e-commerce happens here, but I have a friend who works for the post office so I can ask.
Even though Uruguay has been promoted as the Silicon Valley of South America because of the internet access, government support, and software Developers, I’m skeptical. https://medium.com/bros/uruguay-the-silicon-valley-of-south-america-8cdef0bbcadc
I bought my rental condo because it was near the employment centers of a major Mall and the World Trade Center tax free zone, so hopefully I’ve got my bases covered either way…
This business of profiling users has to be reigned in. It would be interesting if browsers implemented a feature where scripts and cookies could only run from the primary domain requested, and all other embedded content from other external domains was touted through an anonymous proxy network
. . . and from Amazon which is muscling into this space and is expected to carve out over $2 billion in 2018, and more in 2019, providing further
excitementexcrement in future years.Addition, subtraction, multiplication, division, what is going on? I don’t know, but here is a guess.
Lots and lots and lots of money is being wasted to try to sell crap almost nobody needs. It looks like, despite the small decline in TV ad revenue that internet advertising is in addition to all the rest of the advertising categories, and yet actual retail sales have not grown much, if at all. One would think that spending tens of billions on internet advertising would translate into huge increases of retail sales.
The stawk market valuation of Gargoyle and Farcebook is the last daily selling price of a share multiplied by the number of outstanding shares, and because these two suck in the most dollars for their mostly useless Ayeye systems that target ads intelligently to no avail, the so called inwestors are fooled again and again and again.
Speaking of profiling users …. I wish to share an email (Subj: We are the Product) I sent to friends. BTW the referenced blog is NC.
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A classic example of how we are a product being sold just by being on the internet just happened to me. It is so weird I had to share this – it’s a first for me.
I was reading comments at a blog. Some commenters go off on unrelated tangents, so when the discussion is about places that might be interesting I sometimes look up the location on google map. Today I input “Muir Woods”, which many know is just north of San Francisco. I have never been there but know a little about the woods from reading about John Muir. The other location mentioned was a local mountain, so just for grins I looked at the distance between the two and the recommended route.
Not a minute later I received at text from Area Code 415. I looked up AC 415 to see its boundaries. Exactly where I was on google map. Here is the text:
__________________
Hi……..!!!!!
I am Nicky (23) live in your street. looking for a sex partner in the neighborhood. [Edit: More if I had unlocked the phone!]
__________________
WOWSERS!!!
So Google instantly transmits where I am looking and obviously has given personal information in that the text messenger knows that I am a male. Probably didn’t include my age or other details. (I am over 70.) I’m sure Google is working on that for new refinements!
Both funny and scary at the same time!!
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One last point – the text obviously popped up on my phone but my google search was on my laptop. Both Apple products. Last year I bought an older model iPhone5s on sale because I needed a new phone. The old one had a broken text function and would spit out garbage. While writing this I just realized that the old phone was an LG flipfone, and I never had this happen on that one. I did get junk texts, but nothing like this.
I’m suspicious of these numbers. How are they obtained? What algorithms are used? How is a -true causal relationship- established between an online ad and a purchase?
In this era of fake everything, aren’t fake statistics part of The System?
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I live in rural Virginia and am retired. For about 1 year, all the ads in the right column were in Swedish (I bought a used 1968 Saab many years ago, and I have been known to watch Ingmar Bergman flicks in the past). Go figure. Most recently, I have been afflicted by pop-ups advertising a multi-station pipetting machine. Am I being assigned a new identity? Hopefully not a bioterrorist.
And ‘Dooley’ is clearly a Swedish name:)
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[posted same comment on original version of article @Wolfstreet]
“Every year the digital universe doubles in size with many estimates indicating a 50X growth between 2010 and 2020” — if the digi-crap-verse really is doubling in size every year, that would imply a roughly 1000X growth every 10 years.
Also, I’d love to see an estimate as to how much internet content is simply duplication. I suspect the rate of growth of genuinely original content is much more modest, i.e. that it is the rampant ever-greater-duplication-of-original-content as each news story gets re-[*]-ed endlessly which is driving nearly all the growth. There’s an economic analogy here – GDP continues growing “healthily” but ever more of it is from unproductive economic churn and financialization. “We don’t actually produce anything of real value anymore, but we make it up on volume.”