Digital Media Buying Forecast, 2012 To 2017

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1 FOR: Interactive Marketing Professionals Digital Media Buying Forecast, 2012 To 2017 by Joanna O connell, niki scevak, and Anthony Mullen, October 9, 2012 Key TaKeaWays interactive display Marketing spend Will grow in The Us and europe Through 2017 Online display advertising spend will grow at a compound annual growth rate of 17% in the United States between 2012 and 2017, while Europe s spend will grow more slowly. US interactive display media spend will outpace total ad spending rates as offline media is poised to increase at an average rate of 1.1%. programmatic Media and video Will Take a Bigger share By 2017 Programmatic exchanged-based trading will comprise 30% of total spend by 2017, while rich media and long-form video will grow at 16% and 26%, respectively. We attribute this growth to the shift to audience-centric buying and the increased availability and quality of video placements. CpM Will increase as ad impressions increase in Quality and Quantity As impression growth stalls due to viewable impression standards and stabilized social media use, increased spending will put upward pressure on CPMs, which will nearly double between 2012 and savvy Media Buyers Want More From Their digital Media spend Mature digital media buyers will become more reliant on technology, data, and analysis as the CPM rates of good-quality inventory rise. Marketers plan to increase investments in real-time media, third-party data targeting, and video across the US and Europe; interest in programmatic technologies will likely be stronger in the US in the near term. Forrester Research, Inc., 60 Acorn Park Drive, cambridge, MA UsA Tel: Fax:

2 October 9, 2012 Digital Media Buying Forecast, 2012 To 2017 Landscape: The Digital Media Buying Playbook by Joanna O Connell, Niki Scevak, and Anthony Mullen with Emily Riley and Elizabeth Komar Why Read This Report Interactive display marketing investment will grow at a compound annual rate of 17% in the United States between 2012 and 2017, while Europe s will grow slightly more slowly. Double-digit growth across both sides of the Atlantic is due to several factors, including the rise of programmatic buying technologies and new rich media and video options. Increased investment will create changes to the market for media buyers, such as increased CPM rates and heavier competition for key audience segments and inventory. Use this report in the digital media buying playbook to evaluate the expected growth and investment in digital media in the near term. Table Of Contents 2 US Interactive Display Media Will Outpace Total Ad Spending Rates 6 7 New Ad Types And Pricing Models Will Take A Bigger Share Of Spending By 2017 The End Of The Ad Glut Will Cause US CPM Increase Growth In Mature Markets Points To Saturation, But Opportunities Remain In Europe Savvy Media Buyers Want More From Their Digital Media Spend WHAT IT MEANS Justify Higher CPMS Through Better Data And Analytics Notes & Resources Forrester interviewed four companies, including Camelot Communications, ebay, Guthy-Renker, and Ogilvy & Mather. Forrester used data from the Forrester Research Online Display Advertising Forecast, 2012 To 2017 (US) and additional surveys and forecasts in preparing this report. Related Research Documents Western European Online Display Advertising Forecast, 2011 To 2016 December 13, Supplemental Material 2012, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please clientsupport@forrester.com. For additional information, go to

3 Digital Media Buying Forecast, 2012 To US Interactive Display Media Will Outpace Total Ad Spending Rates US interactive display media will grow from $12.7 billion in 2012 to $28 billion in 2017, an average annual rate of 17% (see Figure 1). Comparatively, the offline ad market will only increase at an average annual rate of 1.1%, with the fastest growth coming from cable TV at 4.1%. Several other offline channels, such as radio, newspapers, and yellow pages, will decline. Despite double-digit growth, Forrester has trimmed the US display forecast by about 13% in the next five years. Some of the decline can be attributed to the shift to less-expensive social media impressions, which weakens portals such as MSN and Yahoo. Figure 1 US Interactive Display Media Forecast Media spend (US$ billions) $30, $27, $24, $21, $18, $15, $12, $9, $6, $3, Video Rich media (excl. video) Static image Text ads $0, (F) 2013 (F) 2014 (F) 2015 (F) 2016 (F) 2017 (F) CAGR Text ads $2,439 $2,987 $3,517 $4,199 $4,978 $5,878 $6,844 $7, % Static image $1,962 $1,695 $1,144 $934 $653 $349 $77 $ % Rich media (excl. video) $3,402 $4,314 $5,173 $6,066 $7,176 $8,439 $9,801 $11, % Video $1,550 $2,061 $2,908 $3,890 $4,998 $6,326 $7,720 $9, % Source: Forrester Research Online Display Advertising Forecast, 2012 To 2017 (US) (F) = Forrester forecast Source: Forrester Research, Inc.

4 Digital Media Buying Forecast, 2012 To New Ad Types And Pricing Models Will Take A Bigger Share Of Spending By 2017 The online advertising market will see high growth from two key sectors of the display market: programmatic media and high-end rich media. The core of the display market, performance-based impressions, will shift toward programmatic exchange-based trading at a rate of 43% annually between 2012 and 2017, comprising 30% of total display spending by Rich media and longform video will grow annually at 16% and 26%, respectively, between 2012 and 2017 (see Figure 2). Two macro trends account for these areas of growth: Programmatic media, fueled by audience targeting, will offer the best performance. Performance marketers are shifting budgets from non-guaranteed portal and network media to real-time biddable supply, where prices are more competitive and performance is better due to more effective optimization technology. Both performance and brand marketers also see the value of audience targeting, which is most easily enabled through real-time biddable media. As marketers compete for similar audience segments and bid density increases, average CPM prices of exchange impressions will increase from $3.17 to $6.64 by More brand dollars will flow to high-end online placements. Online users will increase their total time spent viewing long-format video between 2012 and Monthly long-format video views with ads will grow 32% annually, compared with 18% growth from short-format video. Additionally, the average length of long-format video will increase, offering more opportunities for advertising. This is good news for marketers, who still struggle with low-quality video inventory. A managing director at a large advertising agency s global media and performance marketing network notes, We can t achieve scale on video as we can on TV, so we look for high-end opportunities, which are still few and far between.

5 Digital Media Buying Forecast, 2012 To Figure 2 Exchange-Traded Spending Forecast 100% 90% 80% 70% Percentage 60% of total display 50% 40% 30% 20% 10% 0% YOY growth Percentage of total display Exchange traded spending YOY growth Percentage of total display (F) 2013 (F) 2014 (F) 2015 (F) 2016 (F) 2017 (F) 93% 41% 56% 7.80% 13% 16% 21% 31% 27% 28% 26% 23% 25% 27% 30% $ $1, $1, $3, $4, $5, $6, $8, Source: Forrester Research Online Display Advertising Forecast, 2012 To 2017 (US) (F) = Forrester forecast Source: Forrester Research, Inc. The End Of The Ad Glut Will Cause US CPM Increase In the past several years, the number of total ad impressions available expanded enormously as social media sites gained in popularity. That trend has matured; total US ad impressions will increase by only 1.6% between 2012 and The industry move toward a viewable impression standard, driven by the Interactive Advertising Bureau (IAB), is a key factor in stable impressions and competition for quality inventory. Also, now that US social media use has stabilized, new ad dollars flowing to digital media will affect average CPM prices, which will nearly double, from $2.66 in 2012 to $4.68 in 2017, a rate of 12%. Increased CPM pricing will manifest itself in a few parts of the market: More competition on real-time biddable supply. As programmatic buying goes mainstream, marketers will find new ways to exploit the inventory on real-time biddable supply, which performs well against a host of marketer goals. Exchange CPMs will nearly double, from $3.17 to $6.64, by Real-time biddable supply will see the addition of higher-end placements that, being open to a wider array of marketers, will benefit from competition. Also, as audience buying gains in popularity, particularly through biddable media, marketers will compete more heavily for specific audiences that perform well against predetermined goals.

6 Digital Media Buying Forecast, 2012 To Rich ad formats, especially video. Non-flash enabled placements are declining as marketers try to engage ad-saturated consumers. More-expensive CPM placements, such as full-page placements and long-form video, are replacing old formats, including buttons and other small banners. Video will go from 23% of online display spend in 2012 to 33% of spend in Vertical and niche content. Vertical sites and networks will see increased CPMs as marketers look under rocks for valuable consumers and quality content in less expensive places. As more marketers do this, long-tail impressions will be more expensive. A director of global integrated marketing analytics at ebay notes: We re always looking for relevant vertical inventory for niche campaigns, like a fashion promotion we recently did. But for us, even niche spends are still pretty large. Growth In Mature Markets Points To Saturation, But Opportunities Remain In Europe In a recently published forecast, Forrester made the following prediction: In the next five years, the pace of growth in European online display spending will slow from a recent year-on-year peak of 22% in 2010 down to a forecasted 11% in 2016 (see Figure 3). 2 The slower pace comes after a dip in 2009, followed by a time of catch-up in 2010 and But slowing growth also shows that as interactive marketing in Europe matures (it is now a 4.1 billion market), opportunities for growth become harder to find. Yet, despite the pace of growth slowing, we re still seeing an encouraging 13% CAGR rise in the total value of the online display marketplace in the next five years. With the combined value of video and rich media rising from 2.5 billion in 2011 to 5.8 billion, these formats will make up 76% of the total online display market in 2016, compared with 59% in As we expected, growth in the more mature European markets is slowing, but that doesn t mean Europe as a whole is stagnating. Both mature and emerging markets show signs of growth and innovation: The UK will be dominated by brand-marketing innovation. Twenty-eight percent of UK marketers have display budgets of 1 million or more, and 63% of UK marketers care about increasing brand awareness a larger group than in any other European market. This means that UK marketers will favor opportunities for reach and interactivity. 3 France values engagement. Sixty percent of marketers in France believe that the effectiveness of video will increase, while 40% are betting on game marketing, more than any other country we surveyed. Germany, Italy, and Spain are bullish on efficient ad technologies. Half of Spanish display marketers plan to increase spending on real-time biddable supply. Italy and Germany, while also likely to increase spending on real-time biddable supply, are more interested in demand-side platforms, where 30% of German and 38% of Spanish marketers plan to increase spending.

7 Digital Media Buying Forecast, 2012 To Smaller countries start to catch on to display advertising value. Some countries with limited online populations didn t experience early growth in display advertising, but that s changed. Portugal, Greece, and Ireland will have the fastest compound annual growth rate of their display budgets, all more than 16% from 2011 to Figure 3 European Online Display Spending Is Set To Rise Western European online display advertising spend ( millions) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Rich media (excl. video) Static image Text ads Source: Forrester Research Online Display Advertising Forecast, 2011 To 2016 (Western Europe) (F) = Forrester forecast Video Text ads Rich media (excl. video) Static image Total 1,000 Video (F) 2013 (F) 2014 (F) 2015 (F) 2016 (F) ,112 1,321 1,540 1, ,042 1,139 1,238 1,345 1,447 1,686 2,120 2,551 3,010 3,508 4, ,136 4,763 5,433 6,136 6,899 7,685 Source: Forrester Research, Inc. Savvy Media buyers want more from their digital media spend Veteran interactive marketers are faced with unprecedented choice when placing online display buys, from new data targeting options to near TV-quality placements, but marketers will be very selective in the next five years as quality placements and desirable audiences are fought over. Sam Bloom, who runs interactive marketing for Camelot Communications, notes: The truth is, a lot of targeting options aren t worth the money [today], and most of the ad formats are not interesting to consumers. Performance isn t where it should be as a result. The top places where marketers plan to increase spending next year are: Dynamic creative optimization in both the US and Europe. Valuable to both brand and performance marketers, dynamic creative optimization features have come into their own with the granular nature of real-time biddable media, which allows for truly one-to-one creative

8 Digital Media Buying Forecast, 2012 To optimization. Thirty-eight percent of marketers across the US and Europe plan to invest in dynamic creative optimization next year, the highest of any digital media feature we asked about. In Europe, only 5% use it currently, but 54% plan to. 5 Programmatic technologies in the US. The US is a highly scaled display market, which encourages innovation in buying, data, and analysis. There is also a higher consumer tolerance for ad targeting. As a result, 46% of US marketers already invest or plan to invest in real-time bidding, compared with 32% in Europe, while a third of marketers use or plan to use third-party data for audience buying. Big ad sizes in Europe. The one display ad feature where Europeans plan to invest to a greater degree than US digital marketers is for large ad sizes; 63% of European marketers already use or plan to use them. WHAT IT MEANS Justify Higher CPMs through better data and analytics Whether you are a brand marketer, a performance marketer, or you see the synergy in using both, data and analytics should be driving your future investment decisions in digital media. Knowing which impressions are most valuable to you is the best way to ensure a high return on your investment as competition heats up. The best way to do that is to focus on knowing your current and future customers and their behaviors intimately and using the right metrics rather than the easy metrics. A VP of internet marketing at one of the world s largest direct-response television companies says: As we get data, it s critical that we learn how to use it. The most important part is the one-to-one engagement with customers. We must know where they are, when they are, what they d like to see, and give them the right thing. Rather than just spending media dollars, teams with good marketing plans will require that: Digital marketers become systems integrators. Marketers will start thinking about their budgeting decisions within the context of an integrated system that drives good digital marketing, rather than looking at each channel, creative, or technology expenditure in isolation or relying on agencies or IT folks to make the decisions for them. Marketers such as FedEx already do this, as they focus on building an engine that uses customer insights to drive every messaging decision across touchpoints. This mindset shift will move marketers from being brand or channel experts to becoming holistic systems integrators. Digital media buying agencies answer to a client dashboard. Agency media buyers will cede a lot of power to internal groups, such as agency trading desks and vendor partners, either managed by technical groups at the holding company level or by the clients themselves. Team Detroit, a mix of agencies and vendors, already does this for Ford, while

9 Digital Media Buying Forecast, 2012 To many other companies, including Allstate Insurance, are starting to make this happen. As money gets disbursed, marketers will own the ultimate determinant of success a performance dashboard that awards credit (and payment) to the partners that contribute most heavily to desired outcomes. Supplemental MATERIAL Methodology Forrester s Q Global Interactive Marketing Executive Panel Online Survey was fielded to 232 interactive marketing executives, however, only a portion of survey results are illustrated in this report. For quality assurance, we screened respondents to ensure they met minimum standards in terms job responsibilities and budget insight. Forrester fielded the survey May 2012 to June Respondent incentives included a summary of the survey results. Exact sample sizes are provided in this report on a question-by-question basis. This survey used a self-selected group of respondents and is therefore not random. This data is not guaranteed to be representative of the population, and, unless otherwise noted, statistical data is intended to be used for descriptive and not inferential purposes. While nonrandom, the survey is still a valuable tool for understanding where marketers are today and where the industry is headed. As part of its forecast modeling, Forrester develops comprehensive historical and base-year market size estimates based on a variety of sources, including public financial documents, executive interviews, Forrester s proprietary primary consumer and executive research, and analysis of the Internet traffic database. All of Forrester s forecasts are designed by a dedicated team of forecasting analysts who build the models, conduct extensive industry research, and manage the process of formally building consensus among Forrester s analysts. Forecast analysts have backgrounds in investment banking, management consulting, and market research, where they developed extensive experience with industry and company forecasting. Access to the full forecast is available through ForecastView. For more information on this product, please contact our data team at data@forrester.com.

10 Digital Media Buying Forecast, 2012 To Companies Interviewed For This Report Camelot Communications ebay Guthy-Renker Ogilvy & Mather Endnotes 1 Source: Forrester Research Online Display Advertising Forecast, 2012 To 2017 (US). 2 Source: Forrester Research Online Display Advertising Forecast, 2011 To 2016 (Western Europe) 3 Source: December 2010 European Interactive Marketing Online Executive Panel Survey. 4 Source: Forrester Research Online Display Advertising Forecast, 2011 To 2016 (Western Europe). 5 Source: Q Global Interactive Marketing Executive Panel Online Survey.

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