Total UK online advertising expenditure in 2005 grew by 65.6% to £1,366.4 million (£1.4 billion) to take the sector’s market share to 7.8%.
The results of the bi-annual study, carried out in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC), reveal that online is driving the growth of the entire advertising market. Advertising across all other media combined fell by almost £200 million year on year, however the dramatic increase in online marketing expenditure meant that the market as a whole saw a 2.5% increase from 2004 to 2005.
Comparisons
In 2004 online adspend was £825.1 million* – a 4.9% market share. In the second half of 2005 year on year growth was 53.7% with a total of £735.9 million spent on internet advertising. This is a 16.7% increase compared to the first half of 2005 when adspend reached £630.5 million.
Increase in all formats
Each of the primary online advertising formats (display, search and classifieds) grew substantially in 2005 to generate a combined annual growth in excess of half a billion pounds. Display increased by 44% or £103 million year on year, classifieds went up by 62% or £100.8 million, while search rose by 79% or £338.7 million.
Search goes mainstream
Paid-for search marketing saw the biggest increase of all formats, up 78.8% year-on-year from £429.64 million in 2004 to £768.4 million in 2005. Advertisers in 2005 recognised the benefits of search and used its many tools for both direct response and brand-building campaigns.
A key driver for paid-for search, where a customer clicks on an advertiser’s sponsored link and is instantly directed to their website, was a rapid growth in online audiences – up 9.3% from 26.8 million in June 2004 to 29.3 million in June 2005, source: NOP World.
Growth in online display outstrips all other display media
As broadband penetration supersedes dial-up (71% of home internet users have broadband, source: TGI.net), advertisers have increased their investment in powerful rich media (eg advertisements that consist of graphics, audio, video or animation). Display advertising (including banners, skyscrapers, video streaming and medium or large rectangles) also saw a substantial increase, growing 44.2% year on year from £232.9 million in 2004 to £334.9 million in 2005.
The increased investment in online display advertising from 2004 to 2005 was far greater than any other display medium; press display fell by 1% year on year, whilst TV grew by a modest 3.6%, outdoor grew by 5.8% and cinema fell 2.1%.
Classifieds impact press
Online classifieds saw a 62.4% increase year on year – up from £161.4m in 2004 to £262.2m in 2005 - primarily driven by the automotive and recruitment sectors.
The growth of online classifieds is making a significant dent in traditional press classified expenditure where revenues fell by 5.1% year on year. The shift is a recognition that online is more immediate and convenient for buyers and sellers.
Industry categories
Recruitment was again the highest spending industry category, worth 22.1% of the total market in H2 2005. For the same period, finance accounted for 17.4%, while automotive at 12.4% saw continued investment.
Entertainment and media saw the most significant growth and was worth 10.2% of spend in H2 2005 compared to 6.2% in H2 2004. The entertainment industry has capitalised on broadband’s ability to engage consumers through video-streaming and sophisticated rich media adverts.
The next biggest sectors for the second half of 2005 were travel and transport at 10.1%, technology 6.9% and the telecoms industry with 6.1%.
Putting online into context
At £1.4 billion, online advertising expenditure is almost three-quarters (71%) the size of national newspaper advertising, which was worth £1.9 billion in 2005.
Furthermore, online is now more than twice the size of radio (£614 million in 2005) and significantly greater than the consumer magazines (£827.1m) and outdoor (£896.8m) advertising markets.
Guy Phillipson, Chief Executive of the IAB, said: These figures surpassed all our initial expectations. To see such a massive increase yet again is testimony to online’s strengths as a medium to reach mainstream audiences. Our next milestone is £2 billion – a real possibility within the next 12 months, which would make online bigger than national press.
Paul Pilkington, Director, Entertainment and Media practice, PricewaterhouseCoopers LLP said "For a number of years the internet has held a great advantage over traditional media in terms of return on investment, and advertisers are becoming far more confident in the medium as online adspend continues to increase. The internet is totally transforming the ways in which we find, buy and consume products, services and entertainment, and we anticipate more growth in online adspend driven by advertisers simply following their audiences."
Background to the study
• The IAB has been working with PwC since 1997 to survey the value of the online advertising market.
• PwC has run projects in Europe and North America to assess the size of the interactive media markets.
• These figures have become the industry standard for measuring advertising spend and in the UK are now used by the Advertising Association.
• 78 companies have participated in the survey representing thousands of websites.
• Reported figures are not adjusted to account for other organisations that have not participated.
• Total advertising revenue is reported on a gross basis.
• The figures are drawn up on the basis of site declaration. They cover thousands of UK websites, but by no means all.
* Additional information
• The revised figures for 2004 online adspend is £825.1 million. This has been increased from the published figure of £653.3 million.
• In May 2005, in compliance with SEC rules, Google Inc began to publicly disclose its UK revenues for the first time.
• From June 2003 to June 2005, the survey has estimated Google UK revenues based on a conservative extrapolation from the company's last submission of data to the survey in 2002, using the average rate of market growth.
• These results now reflect the publicly available figures, and in order to provide a consistent view of market growth we have used the information newly available from Google to restate total market size since 2003.
• The survey does not include any estimated revenues for non-participants, and represents the aggregation of information submitted directly by companies to the survey team, or, in the case of Google alone, publicly available information about UK revenues.
About the Internet Advertising Bureau (IAB)
The Internet Advertising Bureau (IAB) is the trade association for online advertising. With over 200 members, it's run for the leading media owners and agencies in the UK internet industry. Online is an exciting and fast-growing medium and our job at the IAB is to work with members to ensure marketers can identify the best role for online, helping them engage their customers and build their brands. Through the dissemination of research and the organisation of regular events, we aim
to put online on the agenda of every marketer in the UK, acting as an authoritative and objective source for all internet advertising issues.
About PricewaterhouseCoopers
The member firms of the PricewaterhouseCoopers network provide industry focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries across our network work collaboratively using connected thinking to develop fresh perspectives and practical advice.
Unless otherwise indicated, PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP () a limited liability partnership incorporated in England. PricewaterhouseCoopers LLP is a member firm of PricewaterhouseCoopers International Limited
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