With worldwide spending on advertising expected to reach $500 billion in the next year, it is both a big industry and a major component of marketing spend. In the 15 years since the internet hit the mainstream, the industry has undergone significant change. Now, with the rapid rise of social media, the difficulty in effectively allocating advertising dollars has ratcheted up a notch.
Advertising Fun Facts
To understand why, let’s begin by examining baseline spend on all forms of advertising. The table below shows expected 2011 advertising spending (worldwide and for the U.S.) for all media, the subset of online media, and its subset of social media.
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| Global Spend $B | Yr/Yr Growth | U.S. Spend $B | Yr/Yr Growth | 5-Year Annual U.S. Growth |
| All Media | 480 | 3.7% | 175 | 3.8% | 3.8% |
| Online | 80 | 16% | 33 | 18% | 14% |
| Social Media | 5.5 | 146% | 3.0 | 148% | 35% |
Sources: eMarketer, GIA, IAB, Kantar Media, ZenithOptimedia
(Caveat: individual forecasts disagree markedly among themselves and, as with all forecasts, one needs to judge which method seems the most reasonable. Example: For 2011, the range of global ad spending is a low of $460 million and a high of $492 million. The discrepancy widens over the term of the forecast horizon. For the purpose at hand, medians are used.)
In round numbers, online media will soon account for almost 20% of all advertising spend, and is expected to grow in the U.S. by 14% annually through 2016. The expected growth through 2016 for social media spending (forecasters are cautiously sticking their necks out on this one) is expected to come in between 30% to 40% annually (the midpoint of 35% appears in the table). Why the broad range? There are simply too many unknowns with social media advertising: it’s short of history, and long on experimentation.
Within two years (2013) forecasters are comfortable calling out a global spend in the neighborhood of $10 billion - with half of that spent in the U.S. Here is one outlook.
$10B is a Big Number
Compared to an expected worldwide spend on advertising of over $500B by 2013, $10B seems a mere drop in the bucket. Here are some benchmarks, though, that put this $10 B figure in perspective.
$10 billion is about the same as:
- All U.S. online ad spend in 2004
- All U.S. online display advertising in 2011
- All banner ads purchased worldwide in 2011
- The expected total of all U.S. Classified newspaper advertising from 2010 to 2016
- Expected 2011 U.S. online ad expenditures by the computer, financial services, and automobile industries combined.
The $10B Allocation Gamble
From initial online advertising in 1994/95, it took 10 years for the U.S. to reach an aggregate spend of $10B - a period of considerable trial and error (much of the latter). With new media it often takes years to understand the frameworks and best practices that determine effective promotional spend, and to acquire and refine the skills to pay it off.
Social media ad spend is no different - and, arguably, even more challenging to get right. Shifting ad funds from one medium to another is easy. Getting the same - or better - performance from those re-allocations is not. Those who experiment and run by gut instinct are indeed taking a gamble. Those who approach the opportunity with vigor, and a systematic method of allocating, monitoring and tuning ad spend have the odds in their favor.
Managing advertising spend is similar to managing an investment portfolio: one must arrange the portfolio to support strategic goals, then manage it to keep it on pace to achieve those goals.
Effective management is a matter of:
- having concrete, reliable and valid performance measures
- testing market behavior and planning assumptions before diving in (measure twice; cut once)
- establishing performance milestones at short intervals to determine if programs are paying off as planned
There may as yet be proven certainties in social media advertising, but systematic management can keep it from being an expensive object lesson.
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