adobe digital insights advertising demand report 2016: north america

© 2016 Adobe Systems Incorporated. All Rights Reserved.

Advertising Demand Report 2016: North AmericaAdobe Digital Insights


Methodology

Analysis of aggregated and anonymous data – 800 billion visits to 800 North American websites (Jan. 2013 – June 2016): North American companies in select industries: Media & Entertainment, Retail, Travel, Finance, Automotive, and

Health

Websites classified into segments based on change in number of website visits over the past three years • Growth Websites: Visits increased between Q2 2013 and Q2 2016• Shrinking Websites: Visits decreased between Q2 2013 and Q2 2016

Survey of 1,000+ U.S. consumers, covering their perceptions and preferences around digital advertising and ad blocking (conducted mid-August 2016)

Ad-blocking statistics courtesy of PageFair, based on data through June 2016, including number of blockers installed across 21 countries on desktop and mobile devices


Key Insights

1. Given Internet saturation in the U.S., organic website traffic growth is reaching an end –cross-channel advertising can help drive engaging experiences and entice visitors

2. Long-term ad strategies increase revenue in North America; ad channels deliver moresmartphone traffic

3. Consumers believe ads are improving and can be effective, but marketers still have morework to do (Survey)

4. Highly personalized and consistent ads across channels offer advertisers an opportunity tocounter ad blockers and avoid losing 23M U.S. consumers to desktop ad blockers over thenext few years (PageFair Data)

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© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved. Adobe Confidential.

North American Internet Traffic has Reached Saturation

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Region

InternetPenetration

of Top 20 Economies

Key Countries

Penetrationand Annual

Growth

North America 77% United States 88.5%, +1.1%

Europe 77%United

KingdomGermany

92.6%, +0.9%88.0%, +0.6%

Website traffic has only grown 0.1% over past 42 months (CAGR) 3 out of 4 people already access the Internet (Source: Internet Live Stats)

• Traffic increases due to Internet penetration have evaporated


Eat Lunch or Be Lunch: Websites Are Either Growing or Shrinking

Over the past three years:

62% of websites grew – Visits increased by average of 51%38% of websites declined – Average visit shrinkage was 31%


Growing firms ensure other advertising channels are part of the mix:

Branding Only Takes a Website So Far

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Brand strength channels: Natural Search, Direct Traffic & Referring DomainsGrowing firms: 36% more traffic from other tactics (including Email, Paid Search, Social) than shrinking firms


Growing Websites:

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Growing Websites Evolve with the Customer Journey

Leveraged more personalized, in-the-moment tactics

Social and email garner noticeably higher traffic shares

Shrinking websites:Affiliate & Partner tactics have a higher share


Smartphone Traffic from Advertising Has Increased 40%

Those early to the mobile optimization race won: Growing websites had more smartphone traffic

three years ago than shrinking websites

Some sites still struggle: smartphone traffic gapremained the same (43% gap)

Ad channels deliver more smartphone traffic:7 of 10 smartphone visits come from ad channels

(vs. 1 of 2 in 2013)

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Growing Websites See More Smartphone Traffic on Social and Email

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Growing websites placed more emphasis on Social & Email channels: • Social: 2.9x more smartphone traffic• Email: 1.7x more smartphone traffic

Declining firms relied on Affiliate/Partners and Natural Search


Multi-Channel Strategies Encourage Growth Across Industries

Growing websites see more ad-driven traffic than shrinking:

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Retail: Biggest gap between those that grew and those that shrank (72% vs. 63%)Finance: Least amount of ad-driven traffic (50% average in Q2 2016)Media & Entertainment: Most traffic from ad channels (72% average in Q2 2016)


Long-Term Advertising Strategies Increase Revenue

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Growing retailers see: Higher RPV for transactional channels (Paid Search, Natural Search, and Affiliates) Lower RPV for reaching consumers (social, display, and email)

RPV for North American Retailers (Q2 2016)

Shrank $2.43

Grew $2.60

Difference 7%

By combining tactics and the marketing mix, retailers who grew generated an average of $0.17 per visit (+7%) more than retailers who shrank


68% of consumers believe ads have improved or stayed the same Narrow margin: Advertisers have more

work to do to deliver the right message atthe right time

Majority judge marketers as effective at providing interesting ads (57%) Higher for those ages 25-34 (63%)

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Consumers Believe Ads are Improving


Personalized Ad Delivery Needs Improvement

78% of consumers like personalized ads, but only 28% think they’re tailored correctly Most interesting ads seen while browsing or using social media – when attention can be diverted.

Less likely to notice while doing something with intent (e.g. watching videos or using apps)

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Facebook Is Preferred Social Media Platform for Relevant Ads

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41% of consumers rate Facebook highest in doing the best job at delivering relevant and interesting ads Marketers should focus on attention, not the transaction


Some Ads are More Intrusive than Others

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Consumers unwilling to watch ads with intrusive experiences (e.g. automatic sounds and pop-ups)


Frequency and Length of Ads Are Actionable Consumer Concerns

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Video ad length should be monitored: 1/3 of consumers are annoyed by the length Increases among younger consumers (58% of

18-24 year olds)

Frequency capping should be considered for ads: 19% of desktop and 21% of smartphone

respondents ad use an ad-blocker due tofrequency issues


“Skippability” Is the #1 Consumer Complaint About Ads

57% say being unable to skip is the most annoying element of an online video ad Followed by automatic video and audio, and ad length 48% of consumers will stop watching video if they can’t skip the ad

• Share higher among those who make >$50K annually (51% vs. 42%)

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Most Consumers Not Interested in Paying for Ad-Free Internet

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71% of consumers try to skip ads, but only 37% would go as far as paying to avoid ads

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Consumers no longer limited to just expressing dissatisfactionInstead of paying, they can actively block ads by installing blockers


U.S. Desktop Ad-Blocking Could Grow to 74M+ Users

Globally, monthly active desktop ad-blockers is up 4x since 2013 to 220M: U.S. ranks in lower half vs. Europe for current desktop penetration (18%)

• With large Internet user base (285M), the potential for impact is much higher

If U.S. desktop ad-blocking matches levels similar to Germany, Canada and Sweden…• Could grow by 44% -- adding 23 million people to the pool

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CountryDesktop Ad

Blocking Penetration

CountryDesktop Ad

Blocking Penetration

France 12% Spain 19%

Italy 15% Canada 24%

Netherlands 15% Denmark 26%

UK 17% Germany 27%

US 18% Sweden 28%

SOURCE: PAGEFAIR (MAY 2016)


Ad-Blocking Impacts Everyone, From Marketers to Tech Companies

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Platform POV:“In my mind, [ad-blocking] is a very blunt instrument. And that's why we need to be worried.”

- Sridhar Ramaswamy, Google

“Revenue generated from the display of ads on personal computers has been impacted by [ad blocking] technology from time to time.”

- Facebook earnings call

Consumer POV: 44% of blockers find desktop ads

annoying

89% plan to continue using one

Not everyone plans to use one(14%)

Marketing POV:Specific triggers of ad-blocking adoption:

1. Over-targeting and abuse ofpersonal data (51%)

2. Too many ads (41%)

ADI Recommendation: Back off targeting rules and install stringent frequency caps.

Source: ADI Digital Advertising Survey 2016


Display Traffic Has Decreased in Past Three Years

U.S. share of traffic from display has decreased by -32% (Q2 2013 – Q2 2016) Display occupies a unique position in digital marketing as an upper-funnel tactic that can reach new and loyal audiences

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Ad-Blocking Users Prefer to Interact Socially

As ad-blocking penetration increases, traffic from display tends to decrease The decrease in display traffic is offset by an increase in traffic from social media The U.S. sees lower display traffic and higher social traffic– ad-blocking risk less than in Europe

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Appdendix


Glossary

Ad Channels - things influenced directly by marketers, i.e. all but Direct Traffic Natural Search - arriving organically from a search engine as the result of SEO

Direct - entering a URL in the address bar or using a book mark Paid Search - arriving via an ad, including product ads, from a search engine and SEM Referral - a referring domain that links to a site

Email/Newsletters - direct communication channels with consumers, includes RSS Display - an embedded link in an ad displayed on a page Affiliate/Partner - from a named channel partner, either an affiliate aggregator or a specific site

RPV - revenue per visit AOV - average order value CAGR - compound growth rate computed over months


25-34 Year Olds More Willing to Watch Online Advertisements

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Across most ad types, >50% of consumers are willing to watch them 18-24 age willing to watch skippable video ads than any other type


Only 34% of traffic is direct: 15% of visits to U.S. sites come from other countries

Source of traffic and ad-driven share vary by country: Great Britain and Spain: Lead with over 20% traffic from other countries France and Nordic countries: Much less cross-border traffic

U.S. Sees 66% of Traffic Coming from Ad Channels

Ad channel traffic includes all sources except Direct Traffic