european online advertising through 2013

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For Interactive Marketing Professionals

ExECUTIvE SUMMARyAs the economic recession starts to bite into advertising budgets, growth in online advertising will slow: European online ad spending will grow just 10% in 2009, down from 30% annual growth in 2007. Search will fare best as interactive marketers focus on highly accountable direct response advertising, while display advertising will be hardest hit in this recession just as it was in 2002. Rich media and video advertising will grow to account for 59% of European online display ad spending in 2013 as marketers of all types embrace richer creative formats to improve the performance of their display ads. To prosper during the downturn, interactive marketers should look for value in highly targeted display ads and seek opportunity in the improved performance of contextual ad networks like Google’s AdSense.

THe recession will acceleraTe THe exisTing Trends in online adverTising

Since our last forecast was published in December 2007, the economy has slipped into a recession, and many advertisers’ priorities have changed considerably. 1 As a result, we’ve undertaken a significant review of our previous assumptions. However, most of the fundamental market drivers we saw in 2007 remain in place, and in many cases, the largest difference between this model and our past models is that the pace of existing trends has accelerated.

Paid search will Fare Best as The recession drives online’s share of ad spending

Over the past four years, the annual growth rate of European online ad spending has declined significantly, paid search has continually taken share from display advertising and online classifieds, and online’s share of the total ad market has grown steadily. All of these key trends will gather speed in a down market (see Figure 1):

· We’ve reduced the rate of growth in our forecast to account for the impact of the recession. Our last model forecast that online ad spending in Western Europe would grow at 13% compounded annually through 2012. We’re now forecasting that the market will grow at 9% compounded annually through 2013. The biggest difference is in 2009, when we believe that lower overall ad spending will slow online ad growth to 10%, versus the 14% we had previously forecast. We’ve lowered our forecast’s annual growth rates in 2010 and 2011, as well. We now believe the online ad market in Europe will reach €14.8 billion in 2013.

· As the recession bites and marketers look for results, search will suffer least. The economy will force interactive marketers to prove that their ad spending is generating a positive return on investment (ROI), and search’s pay-per-click model and relatively high conversion rates will

February 4, 2009

European Online Advertising Through 2013Search Will Fare Best In A Recession As Channel Shift Acceleratesby nate elliottwith Mark Mulligan, Tushi Banerjee, and Angie Polanco

© 2009, Forrester Research, Inc. Reproduction ProhibitedFebruary 4, 2009

2European Online Advertising Through 2013 For Interactive Marketing Professionals

continue to attract new spending in a bad economy, just as it did in a good economy. As a result, paid search advertising — which accounted for 49% of European online ad spending in 2008 — will continue to grow faster than any other online ad format over the next five years.

· Display advertising will be hurt, though not as badly as during the last recession. The European online display ad market suffered during the last recession — falling from €886 million in 2001 to €862 million 2002 — while paid search spending nearly doubled during the same period. Advertisers have told us that they’re more likely to cut spending on display ads than on other formats this time around as well, so we’re expecting display advertising to bear the brunt of the recession in 2009. However, display advertising is in a better position now than it was in 2002: A greater percentage of display spending is now dedicated to direct response marketing, and ad prices aren’t as inflated now as they were in the years leading up to 2002. As a result, we expect display ad spending to grow throughout the forecast period — by 4% in 2009, growing to 10% in 2013.

· A bad economy will drive faster-than-expected channel shift. Although the recession will cause online ad spending to grow more slowly than we had previously forecast, it will actually increase the Internet’s share of total ad spending. Just as search’s relatively high conversion rates and accountability will help it outperform other forms of online advertising in a bad market, the largely direct response nature of Internet advertising generally will help it to further outperform offline ad channels during the recession. We had previously forecasted that online ad spending would account for 12.6% of all European ad spending in 2012; thanks to the recession, we’ve increased that forecast to 14.8% of all ad spending in 2012 and 15.1% in 2013 (see Figure 2).



Figure 1 Search Will Continue To Dominate As Online Ad Growth Slows

Source: Forrester Research, Inc.53743

€0

€3

€6

€9

€12

€15

Display

Classifieds

Total (€ billions)

(€ billions)

Paid search

Display

Classifieds

€2.7

€1.8

€8.4

€3.9

€3.0

€1.9

€9.7

€4.8

€3.1

€2.0

€10.7

€5.6

€3.4

€2.0

€11.6

€6.2

€3.7

€2.1

€12.7

€6.9

€4.0

€2.2

€13.7

€7.5

€4.4

€2.2

€14.8

€8.1Paid search

2007 2008 2009 2010 2011 2012 2013

Western European ad spending

Source: JupiterResearch Internet Advertising Model (12/08)



Online’s share of Western European ad spending

0%

2%

4%

6%

8%

10%

12%

14%

16%

2013201220112010200920082007

Figure 2 Recession Will Accelerate Advertising’s Shift To Online



The UK, germany, and France account For Two-Thirds of european online ad spending

Although small early-adopter nations like the Netherlands and the Nordic countries have seen online ad spending grow quickly in recent years, the largest European markets still dominate ad spending (see Figure 3):

· Advertisers give a disproportionate share of spending to the largest markets. The three largest markets in Western Europe — the UK, Germany, and France — continue to dominate European online advertising, receiving 66% of Western European online ad spending. The UK alone accounts for nearly one-third of online ad spending in Europe. This dominance will only continue: According to our European online ad forecast, these countries’ share of spending will remain consistent through 2013, by which time all three will see a significantly higher-than-average share of their markets’ overall ad spending going online. France will see especially strong channel shift over the forecast period as new rules restricting advertising on popular state-owned TV channels will push more ad spending to the Internet.

· The Netherlands and the Nordic markets have moved farther up the food chain. Online ad spending in small but highly-developed markets like Denmark, the Netherlands, Norway, and Sweden have grown quickly in the past few years, and each country now boasts a larger online ad spend than more populous online markets such as Spain. The Nordic markets, in particular, have seen strong growth in paid search spending over the past few years as major search engines have increased their presence and marketers have started to become more sophisticated in their search marketing tactics.2

· Southern European online ad markets still suffer from low user engagement. All of our European consumer surveys tell us that Southern European online users have traditionally been much less engaged with the Internet than Northern European users. Spanish and Italian users, for instance, are less likely than most other Europeans to use social networks or search engines, and the average time spent online in Italy has actually fallen in recent years. Our ad model shows that as a result, the four Southern European markets — Greece, Italy, Portugal, and Spain — have the lowest online ad spend per online user, each less than one-half the European average.



Figure 3 The UK, Germany, And France Account for 66% Of European Online Advertising

video and rich Media will continue To grow in importance

Advertisers continue to report some difficulty in running rich media and video advertising online, most notably in the production and trafficking processes. However, these formats will grow to account for the majority of European online display ad spending over the next five years as advertisers increasingly focus on strategies to improve the performance of their online branding campaigns:

· Video will grow faster than any other display ad format. Advertisers’ use of online video ads has grown quickly in recent years, and we expect to see even greater adoption in the future (see Figure 4). According to our most recent European advertiser executive survey, nearly half of European online advertisers and agencies say that they’ll buy video banners in the next year, and almost a quarter say the same thing about pre-roll ads. As a result, online video ad spending in Europe will more than quadruple — from €239 million in 2008 to €986 million in 2013. By the end of the forecast period, video ads will claim 22% of European online display ad spending and act as the primary reason display advertising outgrows paid search in 2012 and 2013.

· Text ad spending will tail off as graphical AdSense ads become more popular. Spending on text-based display ads grew 22% in 2008 as Google’s AdSense network continued to attract a larger share of European advertisers’ online budgets. However, we expect that growth to decline as advertisers give less of their online ad budgets to display advertising in 2009 and 2010, and as advertisers start running more graphical and rich media ads on the AdSense network in later years.


€3,099€2,138

€1,158€506€501

€440€411€399

€340€149€144

€108€107

€72€69€62

€7LuxembourgIrelandGreece

PortugalAustriaFinland

BelgiumSwitzerland

SpainSweden

DenmarkNorway

NetherlandsItaly

FranceGermany

UK


2008 Western European online ad spending by country (€ millions)



Figure 4 Video And Rich Media Will Take 59% Of Display Ad Spending In 2013

R E C O M M E n D A T I O n S

sMarT adverTisers sHoUld looK Twice aT neglecTed oPPorTUniTies

With markets in Europe and worldwide sliding into recession, online advertising budgets will grow slowly, and advertisers will be forced to justify their budgets more than at any other time in the past five years. As times get tougher, interactive marketers should employ the following strategies:

· look for value in display advertising — and use targeting to help. While it’s still possible to find good-value paid search keywords in Europe — especially in relatively less-developed markets like the nordic countries — advertisers’ continuing preference for search over the past several years has driven click prices ever higher. Meanwhile, the explosion of social media has ensured that there’s plenty of low-price display ad inventory available. Rather than abandoning display advertising in tough times, as many marketers have told us they will do, we encourage advertisers to look for good-value display ad opportunities. Improvements in ad targeting from ad servers and publishers — especially social networks like Facebook and MySpace.com — will drive response rates up, while a drop in demand for display advertising should drive CPMs down. Overall, we think display advertising is likely to offer excellent value over the next year.


Image

Text

Video

€0

€900

€1,800

€2,700

€3,600

€4,500

€650

€646

€155

€789

€790

€239

€927

€830

€323

€1,086

€893

€434

€1,249

€977

€606

€1,432

€1,073

€797

Total (€ millions) €2,742 €3,004 €3,138 €3,359 €3,660 €4,010

(€ millions)

Rich media

Text

Video

Image

Rich media

€1,291 €1,186 €1,058 €946 €828 €708

€1,634

€1,183

€986

€4,411

€608

2007 2008 2009 2010 2011 2012 2013

Online’s share of Western European ad spending

Source: JupiterResearch Internet Advertising Model, Q4 2008


Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 19 key roles at major companies providing proprietary research, consumer insight, consulting, events, and peer-to-peer executive programs. For more than 25 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For more information, visit www.forrester.com.

© 2009, 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 email [email protected]. For additional information, go to www.forrester.com. 53743

· reconsider contextual ad networks. Advertisers have long understood that contextual ads such as those in Google’s AdSense program don’t perform as well as the pure paid search listings that Google and other search engines offer. As a result, according to our 2008 online advertiser executive survey, only 42% of European advertisers use contextual ads, compared with 71% who use paid search. However, many advertisers have anecdotally reported that the quality of clicks from AdSense and other contextual ad programs has increased significantly in recent years. Additionally, we expect these networks to perform ever better as Google increasingly leverages the advanced targeting tools it acquired with its DoubleClick division and as other search engines likewise integrate their recent technology acquisitions. Advertisers that have been disappointed with contextual advertising in the past should re-examine this option.

endnoTes1 Our previous online ad forecast predicted faster growth across the European online ad market in 2008,

2009 and 2010. See the December 19, 2007, “European Online Advertising Forecast, 2007 to 2012” JupiterResearch report.

2 Nordic interactive marketers, as relative newcomers to paid search, are still less likely than other European marketers to use advanced tactics like geographic targeting, landing page optimization, and advanced keyword research. However, the Nordic marketers and agencies we’ve spoken to lately report that the region is becoming more sophisticated in the use of these strategies. See the September 26, 2008, “Search Marketing in the Nordics” JupiterResearch report.

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european online advertising through 2013

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