4 Trends in US Online Advertising Spending

April 23, 2015

IABPwC-Online-Ad-Revenues-2005-2014-Apr2015The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) have released their latest internet advertising revenue report [pdf] covering Q4 and full-year 2014. The results remain generally consistent with the past couple of years, with overall growth in the double-digits, driven by mobile. The following is a quick look at some of the major takeaways from the report.

1. Online Ad Spend Continues its Rapid Growth

The report indicates that online ad spending grew by 15.6% year-over-year in 2014, from $42.8 billion to almost $49.5 billion. (Click the above chart to enlarge.) Though it’s another peak, it’s become a little tiresome to report “record” revenues with each passing year; obviously, if online ad revenues continue to grow each year, then each year will represent a new peak, at least in nominal dollars…

Nevertheless, the year-over-year growth rate in Q4 of 17% matched last year’s Q4 growth rate, but the quarter-over-quarter growth rate in Q4 of 16% was the largest in more than a decade (since Q4 2003’s 22%).

Clearly much of the growth in online advertising spending is going to mobile, as full-year mobile ad spending grew by 76% year-over-year (albeit down from 110% year-over-year growth in 2013). Indeed, from 2010 through 2014, mobile advertising spending has grown at a compound annual rate of 110% (not adjusted for inflation), 11 times faster than non-mobile’s rate of 10%.

According to the IAB and PwC, that compound annual growth rate (CAGR) of 110% in mobile advertising’s first 5 years is not quite as fast as the comparable rate for internet advertising in its first 5 years, which grew at an annual rate of 135% (adjusted for inflation). It is, however, considerably faster than the inflation-adjusted rates for broadcast TV (79% CAGR) and cable TV (69% CAGR), per the IAB’s calculations.

2. Mobile Grows to Capture One-Quarter of 2014 Spend


While non-mobile (read: desktop) search remains the largest format, it has ceded share to mobile over the past couple of years. In 2014, non-mobile search accounted for 38% of total spending, down from 43% in 2013. By comparison, mobile grew from 17% share of online ad revenues in 2013 to 25% last year. While that’s an impressive result, it’s worth noting that even with all the news about mobile, three-quarters of online ad spending continues to flock to other devices (the vast bulk of which is presumably desktop/laptop spending.)

Mobile advertising spend also is comprised of a variety of formats, including mobile search. In fact, mobile revenues are almost evenly split between search (48% of mobile revenues) and display (49% share), with other formats accounting for the remaining share. As such, combining mobile and desktop search means that half of all online ad spending  – regardless of device – went to search advertising last year.

Meanwhile, non-mobile display advertising – consisting of banner ads (16% share), digital video (7% share), rich media (3% share) and sponsorship (2% share) – comprised 27% share of full-year revenues, down from 30% share a year earlier. As a result, mobile advertising (25% share) now rivals non-mobile display advertising (27% share) in size. PwC has previously forecast mobile ad spend to overtake display next year.

Again, the mobile ad revenues also comprise mobile display. Combining mobile and non-mobile display advertising results in display accounting for roughly 40% share of total online advertising spending.

In terms of growth rates :

  • Mobile ad spending grew by 76% to $12.5 billion;
  • Non-mobile search increased by 3% to $19 billion;
  • Non-mobile display-related spending rose by 5% to $13.5 billion; including
  • Non-mobile digital video spending growing by almost 18%, to $3.3 billion.

3. Social Media Ad Spend Jumps


One of the other key trends to emerge from the report is the rapid growth in social media advertising, with revenues exceeding $4 billion in the second half of the year (H2). In fact, the $4.1 billion in social ad spend in H2 represents 58% year-over-year growth from the second half of 2013 ($2.6 billion).

Social media ad revenues totaled $7 billion for full-year 2014, up almost 56% year-over-year.

(The report defines social media as “advertising delivered on social platforms, including social networking and social gaming websites and apps, across all device types, including desktop, laptop, smartphone and tablet.”)

4. CPM-Based Pricing Appears to Have Stabilized


Last year, performance-based pricing, which has been the leading model for several years now, increased by a point to 66% of revenues by pricing model, with CPM/impression-based pricing remaining at one-third of revenues and Hybrid pricing slipping a point to virtually disappear at 1% share.

Of note, though, after falling from almost half of revenues in 2006 to just 31% share in 2011, CPM/impression-based pricing appears to have stabilized in recent years.

Other Findings

  • Second-half revenues ($26.4 billion last year) again outpaced first-half revenues ($23.1 billion), as they have for at least the past decade, partly due to continued growth in online ad spending and partly due to higher ad spend in the fourth quarter. Fourth-quarter spend traditionally is followed by a dip in the first quarter of the following year, although since 2010, that first quarter total has been larger than the previous year’s 3rd quarter.
  • The top 10 industry categories accounted for 91% of online ad spend last year, up a point from a year earlier. Retail was again the biggest spender, responsible for 21% share of online ad revenues, consistent with the 2013 result. Financial services (13% share) and auto (12%) were the next-largest industries by spend, with their share of expenditures unchanged from the year before. Telecom (9%) and leisure travel (9%) rounded out the top 5 again, with the latter up a point in share from 2013.
  • The 10 largest ad-selling companies accounted for 71% of total revenues in Q4 2014, consistent with the 71-72% range seen during the prior three fourth-quarters. Expanding that range to the top 25 ad-sellers nets a results of 82% share of revenues, up a point from last year’s Q4. The researchers note that over the past 10 years, the concentration of revenue among the top 10 companies has hovered in the 69-74% range.
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