IAB says digital ad revenue on pace for $100 billion this year, but headwinds loom

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Credit: Illustration by Tam Nguyen/ Ad Age

Digital ad spending revenue surged 23 percent to $49.5 billion for the first half of 2018, putting it on pace to see its first-ever $100 billion year, the Interactive Advertising Bureau said Tuesday in its twice-yearly report prepared by PwC.

Mobile continues to capture the most ad spending with 63 percent, and the IAB says the rise of direct-to-consumer brands are helping fuel the growth. But although the industry saw yet another record-breaking first half, potential headwinds loom.

Here are several takeaways from the IAB's report.

By the numbers

  • Digital video advertising revenue hit $7 billion for the first half, up 35 percent year-over-year. Of that, 60 percent came from mobile. Overall, video captured 13 percent of all ad spending, thanks in large part to sharing habits on social media platforms such as Instagram Stories.
  • The proliferation of smart speakers and new audio ad technologies continue to fuel digital growth, as audio revenue grew 31 percent to reach $935 million. For perspective, the IAB began including digital audio in its reports in 2017, when the format saw revenues of $1 billion for the full fiscal year. Players such as Pandora and Spotify are both making significant investments in podcasts for future growth.
  • Search advertising captured nearly half of all digital ad spending, coming in at $22.8 billion for the first half of the year. Of that, mobile search grew 37 percent to $13.5 billion, while desktop remained flat at $9.3 billion. According to the latest figures from eMarketer, Google dominates search advertising with a 71 percent market share, but its dominance is expected to decline each year until 2020, when it's predicted to have a 65 percent market share.
  • Mobile display ad revenue grew 45 percent to $11.7 billion in the first half of the year, accounting for 74 percent of all display revenue. Social media was also up 38 percent to $13 billion, the IAB says.

Headwinds loom

The IAB report, which is in its 23rd year, has shown double-digit growth for digital year-over-year with the exception of 2009, or when the U.S. economy was in a downturn and the industry saw its first-ever decline.

The U.S. itself is in a great bull run, but many economic experts feel a market correction is imminent (see here and here). Should that day arrive, digital advertising could also see a dip in ad spending similar to what it experienced in 2009, when overall revenue fell nearly 3.5 percent year-over-year.

"What we've seen historically is that slow down occurs during economic downturn," says David Silverman, partner at PwC. "I don't think the ad industry as whole has the capacity of [consistent] double digit growth."

Direct-to-consumer is real

Direct-to-consumer brands were all the talk at the Association of National Advertisers' conference in Orlando earlier this year, and the IAB is now saying they are having an impact on digital advertising.

Digital advertising is giving direct-to-consumer brands more agility to place effective and efficient ads at lower cost of consumer acquisition, the IAB says, adding that as long as consumer acquisition proves to deliver strong return on investment, marketers will continue increasing their spend for future growth.

"What we are seeing is these direct-to-consumer companies tend to rely on digital advertising because they can target consumers efficiently and pay for performance," says Silverman. "This media for one is very cost effective and the key to success" is for the format to remain efficient.

Next Generation

Gen Z is here to wreak both havoc and rewards for marketers. The IAB says that come 2019, Gen Zers will outnumber millennials, making them the youngest generation to adopt mobile devices.

Although Gen Z are most likely of all consumers to use "buy" buttons (56 percent) and shoppable photos (34 percent) to complete purchase, they also have increasingly short attention spans and avoid traditional advertising faster and more often, the IAB says.

Duopoly fueling growth?

The IAB says the top 10 digital media companies delivered 73 percent of the digital advertising market, a minor decrease of 2 percent when compared to the previous year. Silverman declined to share what percentage the top two contributed to the overall ad spend.

"I think everyone would know who the top two would be, sadly," he said. "It's important to note that our figures are U.S. only … we are not double counting."

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