Behind the dip in digital desktop advertising
Digital is hot, but the gains are being driven by mobile
June 14, 2013
With more than half of Americans now owning smartphones and more than a third owning tablets, mobile internet usage is soaring. People are using their mobile devices to perform searches, check their social media profiles and send email, and advertisers want to reach them in this growing environment. That’s led to a surge in mobile advertising, which is no surprise. What is surprising is that desktop advertising, or advertising on sites reached via desktop computers, is being cannibalized. A new report from eMarketer finds that the growth of mobile advertising is slowing spending on desktop advertising at a quicker pace than expected. Over the next four years, mobile advertising will nearly quadruple, from $7.65 billion to $27.98 billion. Desktop spending, meanwhile, will go from $35.39 billion this year to $32.51 billion in 2017. The report predicts that next year nearly all desktop formats except digital video and sponsorships will see declining spending or flat growth. Clark Fredricksen, vice president at eMarketer, talks to Media Life about why the shift is happening, what this means for media buyers, and what role tablets are playing in the change.
What is the most surprising or most interesting thing about this report?
I think the headline kind of says it all (“When will desktop ad spending peak?”).
It’s pretty surprising that not only has mobile grown as fast as it has, but in some cases it’s coming at the expense of desktop growth. I don’t think at this point people expected that shift to take place as quickly as it has. There’s pretty good evidence that it is happening, but at the same time it’s a pretty shocking shift for the industry, frankly.
It’s not to say desktop won’t grow at all or there won’t be significant competition there or redistribution of dollars, but the fact that desktop is essentially flattening while mobile sees most of the incremental dollars in digital is a surprising finding.
What’s the most important thing media buyers and planners can take from it?
I think there are a lot of takes.
I think on one hand the obvious take is that mobile ads are increasingly important and going to be an increasingly important channel today and in two or three years. It’s important that a media buyer doesn’t look at this and think that they’re not going to be spending as much on desktop anymore, there’s still tremendous growth to be had in different desktop formats. Video continues to see rapid gains and that could continue.
On the other hand, a lot of the advertising that was going to banners on desktop is now going to banners on mobile devices.
The other big change comes in the search space, where the volume of people making searches on phones is creating a redistribution of paid clicks.
An important thing for buyers and planners is to ensure campaigns are mobile-optimized across devices and platforms, particularly those meant for direct response. It’s important that those advertisers have strong and sophisticated mobile experience to offer people. If they don’t, it’s much less likely that they would convert.
What is driving the strong gains in mobile advertising?
There’s probably a couple of main things. One is the proliferation of smartphone devices and the rapid adoption of them has dramatically increased the amount of time consumers spend on phones, and in some cases away from desktop devices.
By the way, an important aside is we include tablets in mobile for now; eventually they may be in their own category.
But the amount of time consumers spend on activities that used to be on desktop on their phones is growing dramatically. The most significant of that is searching for things on their phones–the rapid increase in volume in mobile searches is a huge contributor to the growth of mobile advertising.
Google is essentially now seeing such a significant portion of searches come from mobile users that the ad dollars there are essentially redistributed from desktop to mobile.
Another relatively similar trend in display is as more people, for example, use Facebook on their phones rather than desktop, they’re forced to serve a high volume of mobile ad impressions at the expense of desktop. Consumers are using mobile now, so Facebook is serving ads where the users are. In Facebook’s case as well, the growth of mobile to some extent is about a redistribution of dollars on their part as users shift from device to device.
There’s an important distinction to draw about what advertisers and buyers are doing–they might go to a platform and say we want X reach and we’ll spend X amount of money. A company like Facebook or Google says great, and those companies serve ads to people wherever they may be.
Previously when those companies didn’t have ad products on mobile devices, they weren’t seeing any sort of parity of usage versus ad dollars. Now, though, if some percentage of Facebook users are using it on their mobile devices, Facebook will serve the ads where the users are. So the ad dollars are getting distributed much closer to how people are using the platforms across devices.
How much of the gains in mobile advertising can be credited to tablet adoption?
That’s a great question.
At this point we don’t have a breakout between tablet and smartphone advertising. But I think that it’s safe to say that tablet usage is much more similar to desktop in some ways and similar to mobile in other ways.
I think you can definitely make a case that in the direct-response area advertisers are much more likely to want to reach tablet users–they tend to be not only affluent, but also more likely to make purchases than people using smartphones.
For a direct-response advertiser that means tablet users are a more likely group of people to buy things directly from their ads. So in that sense tablets may be more attractive to direct response, and also some display advertisers because it’s a bigger screen.
On the other hand, phone usage is so high that you would expect the majority of volume of ad impressions served and paid clicks would probably be coming from phones. So it’s a mixed bag.
On one hand the tablet audience is more premium, but the mobile phone audience is driving such significant volume. So both are spurring forward the market overall.
How does the addition of mobile ads to Facebook impact overall mobile ad spending?
In the U.S. it’s market-moving, and probably worldwide too. Facebook is one of the biggest display ad publishers on the internet, serving millions and millions if not billions of impressions on a monthly basis. So to take a little piece of that and move it over to mobile for the first time is a big shift for the industry, and ultimately a big boost for mobile display advertising.
As those products appear to be relatively engaging and premium ad placements, it certainly makes Facebook more appealing to advertisers in terms of reaching audiences no matter what device they’re on, which frankly is something not too many ad publishers can promise.
One other thing that’s important to mention about Facebook and Google, with such large players finally stepping into the market and grabbing a large market share, it does encourage advertisers to make investments in mobile technology and marketing that they may not have made previously; things like developing a strong mobile site or integrating a mobile commerce platform or developing specific creative for mobile devices.
These are things many marketers were very behind on, so the addition of Facebook and growth of Google in the market has encouraged a lot of advertisers to finally make investments in basic infrastructure and to make larger mobile ad buys.
How much is mobile advertising driving overall digital ad sales right now?
The answer is relatively straightforward–the bulk of new dollars going into digital are going straight into mobile. That’s not to say, though, that advertisers are deliberately making buys for mobile devices. It’s to say that advertisers are growing their digital ad budgets, and platforms are getting more savvy at reaching users across devices.
On the other hand, video is still a huge driver of growth in the digital ad world, and it’s primarily a desktop medium, and we expect that to continue.
You note that desktop spending will begin to drop in 2015. Is that because the pricing of desktop ads will be lower or because more people will be investing in mobile?
It’s unclear how the pricing mix will affect the market at a macro level. Desktop pricing is still going down because there’s an incredible amount of inventory, which at a supply-demand level decreases prices. The growth of real-time bidding and programmatic buying also contributes to lower pricing on desktop, and those two things will only increase the next four to five years.
On the other hand, that’s probably not why–it’d be giving desktop too much credit.
Ultimately the shift away from desktop will be because consumers continue to increase time spent with mobile devices, and most importantly they’ll start making more purchases on mobile devices. And we’d expect that to shift direct response budgets from desktop to mobile, and that comes in the form mostly of search.
Do you envision a time when mobile outstrips desktop spending? How far away is that?
It’s possible, and certainly the trajectory of growth indicates we may see that at some point. But there are a number of variables that preclude us from looking that far into the future.
Most important among those are to what extent the growth of smartphone activity continues on its current path, not in terms of dollars but time spent on devices.
It’s also unclear to the extent how much video dollars will shift from TV. Video is growing fast, but it’s still a sliver of the TV market. If that changed, or if those two media integrated more closely, it could be an incredible sea change for the industry, and it’d change the dynamics of desktop spending dramatically.
Not to mention the platforms themselves and ad publishers developing different technologies, formats and solutions to old problems that could see desktop grow very dramatically, for example.
So it’s possible, but at the moment there are a lot of variables.
Why will banner and search desktop advertising begin to see flat or declining spending?
More people are searching for things using their phones instead of desktop, or in addition to desktop, which is changing the dynamics of search advertising. We’re certainly seeing desktop search dollars flatten as mobile grows.
It’s a similar story for banners in that more people are using large platforms with significant shares of desktop banner market on their phone now, and that goes back to Facebook and Google and a couple other platforms, and that’s cannibalizing the desktop market to some extent.
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