UK Online Adspend Growth Falls Dramatically, But Outperforms 2001 Media Market

Unsustainable growth The heady days of triple digit growth for the internet advertising sector are gone for good. The rate of growth in 2001 plummeted sharply from 2000’s massive 203% to just 7.1%. In actual revenue terms this is an increase of just £11 million between 2000 and 2001, to £165.7 million.

Internet Advertising Revenue Trends
	Revenue (£ million)	YoY Growth (%)
1998	19.4	n/a
1999	51.0	162.9
2000	154.7	203.3
2001	165.7	7.1

2001 Advertising Growth By Sector
	YoY Growth (%)
Television	-10.8
Radio	-9.2
Press display	-4.7
Outdoor & Transport	-2.8
Press classified	1.2
Internet	7.1
Direct mail	8.7
Source: PricewaterhouseCoopers

However, as the chart above shows, online’s performance was still one of the best in a troubled media sector in 2001, with only direct mail showing stronger growth at 8.7%, according to PricewaterhouseCoopers data. The online figure is based on actual recorded revenues reported by the finance departments of online media owners.

Online’s outperformance of the market in difficult conditions may indicate resilience and longer-term growth, as is highlighted by the IAB; however a substantial factor in the sector’s growth is likely to be the tail-end of the effect of the Net gaining general acceptance. The huge growth of 163% and 203% in 1999 and 2000 respectively represent the adoption of online advertising from a more or less standing start. As the sector is still relatively young, year on year increases in adspend are to be expected.

The IAB says that online’s 2001 performance closely mirrored the media sector as a whole, with a stronger H1 and weakening conditions throughout the year, particularly in Q3, as shown.

Growing audiences A key driver of the sector’s growth was rising audiences, says the IAB report. There were 24.0 million users by the end of 2001, according to figures from eMarketer; usage number are forecast to reach 32.6 million by 2004 (see European Internet User Forecasts).

Internet Users Forecasts By Country
	Number Of Users (million)
	2000	2001	2002	2003	2004
Germany	24.0	30.0	36.7	40.7	42.5
UK	18.0	24.0	28.6	31.4	32.6
Italy	13.2	16.0	19.2	21.1	21.9
France	8.5	15.7	21.2	25.0	26.7
Source: eMarketer, May 2002

Traditional brands take to the Net The IAB says that marketing campaigns of traditional brands are now beginning to drive up the medium’s revenue and taking over from the young internet companies whose marketing had previously dominated. The web now takes over 1% of total UK adspend, which is more than cinema, according to the IAB.

The report also indicates that advertisers moved to more accountable media in the tough ad climate. This meant that the internet and direct mail gained at television and press’ expense.

Tied to the global economy The IAB says that the UK’s online sector is more closely tied to the global economy than any other media area. This is because North American and Asian companies are heavier users of internet advertising. As a result, the sector was vulnerable to ‘cooling’ in those markets during 2001, says the report.

A maturing medium “Although still a young medium, online is maturing fast. Audience levels are now comparable with many traditional media, a range of key standards now in place improve the efficiency of the marketing process and the key foundations it needs in place. There are clear measurement metrics for audience numbers, a range of widely accepted trading products such as banners and rich media and a basic currency in the form of blocks of thousands of adverts (CPM),” says the IAB report.