The advertising space is undergoing rapid changes as software’s expanding footprint grows ever larger. As the Consumer Electronics Show underscored yet again last week, new platforms and smarter services — phones, speakers, TVs, headsets, home appliances and other devices (even increasingly connected cars) — are bringing innovators new ad formats and new opportunities to disrupt the half-trillion dollar global advertising market. If, indeed, there is a future beyond “the end of advertising,” we can be certain that the business will not look quite the same that it does today.
Despite the accelerating pace of change, the continuing successes of Google’s and Facebook’s advertising businesses have prompted some to question whether the advertising space is still competitive. Critics of this so-called “duopoly” argue that the two Silicon Valley companies are the only viable participants in an industry that is unfriendly to incumbents and new entrants alike. These arguments paint a flawed picture of an industry that is in fact defined by constant reinvention, innovation, and new investment.
Consider today’s reality: advertisers compete to reach the same consumers across multiple mediums. Services that deliver ads digitally to an individual’s mobile device don’t just compete against one another; they compete directly with television, print and outdoor options (e.g., highway billboards, subway stations, Times Square installations). Inter-media competition was particularly evident in last week’s “shakeup” announcement by Adobe and Mediaocean, that the two would partner to join digital ad buying with television, and “converge and automate television and video advertising.”
This competition is fierce, as advertisers continually shift budgets among platforms to maximize the return on their ad spend. What was once a quarterly or monthly re-evaluation of advertising programs has become a weekly and even a daily recalibration of how and where advertisers are reaching their audiences.
Economic research confirms that online and offline advertisements substitute for one another. This is consistent with what one would expect to find. As we’ve discussed here on DisCo before, Internet radio does compete with traditional broadcast radio — aggressively so. It would therefore be strange to suggest that advertising on digital radio doesn’t similarly compete with advertising on broadcast radio.
By using data from the Internet Advertising Bureau , , the Association of National Advertisers, and market research and intelligence provider MAGNA Global, the graphic below illustrates where digital advertising fits into the broader advertising space with the four other major advertising vehicles (radio, outdoor/billboards, print, and television), and represents how this categorization breaks down even further in the digital ad-supported ecosystem.
Using a hypothetical company spending a $100 budget in a fashion representative of the overall ad space, the graphic contextualizes a typical expenditure to illustrate how much ad spend goes where, rounded off to the nearest dollar. Naturally, different advertisers will pursue different strategies; a given advertiser might spend its entire budget on radio. As the graphic shows, however, an average advertiser spending a $100 budget in a representative way would spend $6 on radio.MORE »