Destination digital

In an increasingly tough economic climate with falling ad budgets, digital media is unquestionably on the right side of the tracks. Increased internet consumption, the growth of social media and the increased corporate requirement for accountability have made it the perfect media channel for a greater range of advertisers.

In 2008 in the US, digital advertising revenues surpassed US$23bn, the fifth consecutive year of record results, despite the sharp downturn in the economy. In the UK, digital grew from strength to strength, increasing 17pc year-on-year to £3,349m. To put this in context, digital ad spend in the UK now accounts for 20pc of the total advertising market, surpassing press classifieds, outdoor, radio and cinema. In fact, online ad spend is now on par with press display and lags just marginally behind television.

In Ireland, meanwhile, 2008 was a year of two halves, with phenomenal growth in digital ad spend for the first six months of the year, but as market conditions deteriorated, a reduction in ad spend resulted as brands reassessed their investment levels in all media. Despite this, digital outperformed all other media with an estimated annual growth of over 22pc to €105m in 2008.

However, the bad news is, we estimate digital ad spend – like all other media – will succumb to market forces and decline by approximately 4pc this year. The good news is that this is the best outlook for any of the commercial media in this market, and is still up 17pc on 2007 figures. And the better news if you are in the search business or dependent on search revenue is that we expect this segment to grow by 28pc in 2009.

In total, the overall market may be worth around €101m all in – which will put online at about 10pc of the total media advertising market, bigger than media such as cinema but approximately 30pc smaller than radio.

Internet audience

Internet consumption continues to climb in Ireland. According to ComReg, there were over 1.4 million active internet subscriptions in Ireland at the end of 2008 – a rise of 19pc over the previous year.

Last year was also a watershed for Irish broadband penetration, with figures surpassing one million for the first time. In fact, according to the latest report from ComReg, the total number of broadband subscriptions in Ireland was 1.2 million, thus bringing the broadband per capita penetration rate to 27pc, versus 25.9pc in Q3 2008. It’s also interesting to note that mobile broadband represents 25pc of this sector and is now the fastest-growing platform, with subscriptions increasing 142pc in 2008.

However, when mobile broadband is excluded from the mix, the overall fixed-line penetration rate falls to 20.2pc. Despite the impressive 21pc annual growth, when one compares this performance to our European neighbours Ireland is still falling well short.

Based on data provided by the European Competitive Telecoms Association (ECTA), Ireland’s fixed-broadband penetration is calculated at 20.3pc on the basis of population size of 4.2 million, thus ranking 14th among the 28 countries benchmarked, well below countries like Estonia, Malta and, most importantly, the EU average.

Meanwhile the latest results from JNIR (Joint National Internet Research) reveal that the number of consumers using the internet every single day has increased to an even greater extent, with men spending over 10.25 hours per week online and women spending on average 7.82 hours per week online.

JNIR also reports that the majority of users access the internet every day from work (62pc of the population), with a further 49pc attesting to going online every day from home.

It’s no surprise to see that teenagers have eagerly adopted the medium, particularly social networking sites, with 83pc of 15–18 year olds the most likely category to have used the internet in the past month.

49pc of users used the internet for travel information with news/current affairs and internet banking the other most prominent online activities, according to JNIR.

Advertising costs

The tough economy has also affected advertising costs. We estimate that average CPM (cost-per-thousand) rates fell 8pc last year. More realistic pricing models, more inventory available on Irish sites, the arrival of additional international network buys, increased social media options and more sales houses have all contributed to a reduction in average CPM rates charged. And with tighter budgets, less discretionary ad spend and increased inventory, we envisage a further reduction of least 10pc in display rates market conditions in 2009.

In contrast, we forecast that the paid search market will see inflation increases of 10–15pc in 2009. Although CPCs (cost-per-click) vary from sector to sector, greater competition from an increased number of advertisers entering this more measurable channel is likely to result in higher CPCs being charged across the board.

More digital opportunities

The majority of new opportunities are primarily focused on driving more accountability and converting traffic to a brand’s website, thus increasing digital’s appeal to a more ROI-focused advertiser in this tougher economic climate.

However, the proliferation of publishers, along with the economic downturn, has resulted in increased appetite by these sites to create bespoke integration solutions and work with brands to design packages that will appeal to their target market and help achieve campaign objectives.

2009 has also seen increased focus on cost-per-action (CPA) buys, whereby the advertiser pays for each specific action (ie purchase, enquiry, lead, application download, etc) that is directly linked to a specific ad placement. From a direct response perspective, CPA is the optimal way to purchase digital media, as the advertiser pays only when the desired action has been completed. As the market shifts to a more ROI focus, publishers will have to offer CPA purchasing models or else face exclusion from future media plans.

The rise of blind networks has also been a significant opportunity in 2009. Blind networks involve the advertiser purchasing remnant inventory on reputable sites through a third party. CPMs are generally much lower than buying directly from the publishers, and net coverage is increased as more impressions can be purchased. The main drawback is that site placement cannot be identified pre- or post-campaign and therefore is not as responsive as a site-specific or channel-specific buy. However, the lower CPMs on offer in conjunction with the higher reach justify their inclusion on plans.

Behavioural targeting has also seen increased popularity due to its ability to increase the effectiveness of all ad campaigns. It uses information collected from an individual’s browsing behaviour, such as pages visited or searches conducted, to display the most appropriate ad to suit their personal tastes and interests at that time. As the ad is more targeted, response rates are strong, appealing to online retailers and DR (direct response) advertisers.

Affiliate marketing, where a business rewards another for each visit/customer brought to their site by the affiliate’s marketing efforts, is another area that has seen increased interest by advertisers in recent years. We expect this ROI-driven sector to mature and expand in the current climate.

Social networking will continue to grow. Consequently, advertisers have a genuine interest in discovering ways to develop social-media and marketing strategies to engage and interact with social networkers. The challenge is to interact with social media in an authentic way, knowing that they are going to be punished by its denizens for any perceived spam. It will be those brands and agencies that engage with these social media users in a meaningful way that will thrive and grow.

Finally, in the face of increased competition and escalating bid prices within the paid search-engine marketing sector, we expect to see funds shift to the long-term strategy of improving organic search engine rankings via strategic search engine optimisation campaigns.

Future challenges

This is the first recession since the internet has become a mass medium. And in the toughest year for advertising, the future of digital advertising remains positive as traditional media declines.

Incorporating digital into the overall media mix remains a major challenge for the fledgling industry here. A holistic approach of integrating digital channels when brands plan their overall strategy is the only way forward.

Also, when planning digital, marketers need to consider all digital components to their online communications mix in order to achieve their specific online objectives: display, search engine marketing (both organic and paid), email and now social media all have roles to play.

Increasingly, clients want to determine what works best for their brands and what generates the highest ROI. Soft measures of ‘interaction’ or ‘clicks’ are no longer sufficient campaign metrics. Key performance indicators (KPIs) such as customer acquisition, retention, satisfaction levels and ROI are what more clients are now demanding. Publishers must work with agencies and advertisers to ensure these KPIs are achieved in order to secure future revenue growth for the industry.

The quality of ad creative is another challenge. Increasing broadband penetration levels have necessitated a shift to interactive rich media and digital video in ad creation. Brands must continue to shift from the animated banner/button approach to engaging, interactive digital video in order to remain fresh. As internet users become more sophisticated it’ll become harder for brands to cut through and engage with increasingly jaded consumers.

In summary, as broadband penetration rates improve, internet usage levels climb, and online marketing opportunities increase, if digital media isn’t a consistent part of their overall media strategy, given the accountability and measurability of the medium, Irish marketers really need to ask themselves, why not?

by Aisling M Brennan

Aisling M Brennan is director at Diffiniti Ireland.