Online advertising spend continues to increase

Online advertising spend is predicted to increase to £3.4 billion by the end of 2008, a 30.8% increase. Not only that but the UK will be the first major global economy where internet advertising will enjoy a higher spend than TV advertising (2009), a trend we’re going to see in Sweden this year.

And yet we’re seeing click through rates for banners and traditional online advertising continue to decrease. Reported average rates from 1 click for every 500 impressions or a CTR of 0.2%.

So why are marketers putting their money increasingly with online advertising. The answer is probably three fold.

1. Online Advertising as Branding

From one angle there seems to be an increasing shift from internet advertising being seen as an extension of Direct Response and moving more towards branding. As in traditional media where advertising expanded from back page ads for products to outdoor campaigns, so online advertising is seeing a move from the ad required to give an immediate response to those which are more about the positioning and the brand. With comments from media buyers and broadcasters indicate that a decline in TV advertising on between 7-10% -depending on who you’re reading (the advertising Association forecast in increase of 0.8% but I suppose they would)- it’ll be interesting to see if online brand advertising spend, especially in a slow down, takes a share of TV spend or whether it will continue to take from DM budgets.

2. Success rates of new advertising formats.

The launch of iPlayer, the recent announcement by T-Mobile and Yahoo for the delivery of banner ads, Ingame advertising; a lot has happened in the last 12 months. Video advertising is perhaps the biggest success story so far delivering CTR of 1%-2% i.e. the same levels that were enjoyed by banner advertising at the turn of the century. Embedded advertising, as applied by YouTube is having a greater success rate than banner and button advertisements.

Mix this with the branding argument above and we are seeing that video ads are increasingly being used for brand awareness, message association, and advertising awareness with user purchase intention increasing by a whopping 50% after viewing video advertising.

3. Better Inventory control

Behavioural and contextual advertising, while not quite meeting the promise trumpeted by the large content platforms such as Yahoo! and MSN, has allowed advertisers and their agencies to incorporate more sophisticated online media planning. Being able to target user on their profile, their behaviour and the content they are accessing is a pretty powerful ideal. Psychographic profiling really has huge potential for online advertisers. Online advertising can now pay more than lip service to the buyer decision making cycle.

What is really exciting is that online measurement is going to be multi dimensional with the nitty-gritty of CPC, CTR and the like being joined with the more esoteric psychometric measurements of branding.