Online Ad spend Surprises Ahead?

If you follow the trends in online advertising or, better yet, have budget responsibility for it, then keeping an eye on reports from The Interactive Advertising Bureau (IAB) is a good idea.

The IAB is an association of some 500 organizations who, representing 86% of the estimated 2011 online ad spend of $31 billion, have substantial skin in the game.  It has a pretty serious roster of Board Members and Directors.  A Sun Microsystems alumnus and colleague, Elisa Steele who is now CMO at Yahoo!, is on their Executive Committee.  Likewise, the opinionated King of Search, John Battelle, is a Director.

Just how much skin do all these folks have in the game?

For starters, here’s a forecast jointly compiled by IAB and Price Waterhouse Coopers.  It’s actually a mix of historical (for a baseline) and projected ad spend by Industry.  (Caveat: as I wrote in a June 20 blog, one must take such forecasts with a sizable grain of salt as they represent what advertisers would likely do in the future should their assumptions about that future hold true.  Such assumptions rarely do.)

Some eyebrow-raisers of note: 

• Online ad spend is expected to almost double in the next 5 years, increasing from 2010 spend of $26 billion to a projected 2015 spend of about $50 billion.  By way of comparison, U.S. advertising in all media is estimated to be $500 billion in 2010.  Online ad spend would still come in under 10% of the total.
• The Consumer Packaged Goods (CPG) industry (US$2 trillion producers of food, beverages, clothing, tobacco and household products) rank 5th overall in online ad spend.  Even with large expected yr/yr gains, it appears that the likes of P&G and Colgate-Palmolive are reluctant to move spend aggressively from traditional media.  Their caution is understandable: they defined effective advertising in print and broadcast media, and are not about to bite the hand that feeds them.
• What does stand out is the apparent “all in” strategy of automotive manufacturers.  Ranking 4th in online ad spend in 2010, the auto industry is forecast to rise to be the second largest online ad spender in the U.S. by 2013.  Given how the industry has been re-defined in the past 7 years, one can sense that there is a greater willingness to take risk in the industry than if the status quo had remained unchanged.

There is little in the way of history for advertisers to rely upon in evaluating online advertising strategies.  Much of it is still unchartered territory; advertisers are still feeling their way along. Add to this the challenge of incorporating social media, and one gets a sense of just how much is at stake in solving this Rubik’s Cube. 

Don’t be at all surprised if the data in 2015 looks very different than what is projected.  Given the faltering economy and the demand for increasing shareholder value, the pressure to innovate in this space will be high.  As firms crack the code on developing effective online campaigns, expect to see the rest of their industry follow quickly.

Online ad spend on the order of $75 - 100 billion by 2015 is not out of the question.