Internet advertising
The interlocking forces produced by the rises of mobile, video and ad blocking are reshaping the market.
A market that continues to expand rapidly, easily outpacing GDP growth. How will the rise of intelligent personal assistants like Amazon’s Alexa, Microsoft’s Cortana and Apple’s Siri impact paid and mobile search? We expect the online advertising market to surpass 2 billion euros in 2018. By then it will represent 53.1% of all advertising spending in The Netherlands, up from 47.2% in 2016.
Playing field
The Internet advertising landscape is changing fast. Interlocking forces produced by the rise of mobile, video and ad blocking have reshaped the market, which is nonetheless continuing to expand rapidly, easily outpacing GDP growth. ‘Search’, as one of the more traditional formats, is holding up well thanks to its suitability to mobile and its ability to avoid ad blocking.
Intelligent personal assistants like Amazon Alexa, Microsoft Cortana, Google Home and Apple HomePod (Siri) can impact Search in the near future as more and more customers will be able to search without using a screen.
Banner ads, on the other hand, are vulnerable to ad blocking, ill-suited to the limited on-screen real estate on mobile devices, and in many cases replaceable by more impactful video formats. This is resulting in the lowest growth rate of any part of the Internet advertising market. Conventional banner ads, which were once the mainstay of the Internet advertising market, will account for barely a quarter of Dutch Internet advertising revenue by 2021.
As in most Western markets, Google effectively controls the Dutch internet advertising business, with other parties holding small market shares. From time to time, local initiatives arise but so far none of them have become a serious competitor to Google. The same situation applies to social media advertising where Facebook holds a strong number one position.
| Internet advertising market (€ millions) | |||||||||||
| Netherlands | Historical data | Forecast data | CAGR % | ||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 17-21 | |
| Paid search Internet advertising revenue | 473 | 517 | 554 | 571 | 612 | 659 | 706 | 747 | 776 | 797 | 5.4% |
| y-o-y growth | 9.3% | 7.2% | 3.1% | 7.2% | 7.6% | 7.2% | 5.7% | 3.9% | 2.7% | ||
| Classified Internet advertising revenue | 195 | 191 | 206 | 225 | 245 | 260 | 273 | 283 | 289 | 294 | 3.7% |
| y-o-y growth | -2.1% | 7.9% | 9.2% | 8.9% | 6.2% | 5.0% | 3.7% | 2.1% | 1.5% | ||
| Wired other display Internet advertising revenue | 420 | 409 | 402 | 382 | 389 | 395 | 400 | 405 | 409 | 412 | 1.2% |
| y-o-y growth | -2.6% | -1.7% | -5.0% | 1.8% | 1.5% | 1.3% | 1.2% | 1.0% | 0.8% | ||
| Wired video Internet advertising revenue | 41 | 48 | 58 | 61 | 70 | 79 | 88 | 95 | 101 | 104 | 8.2% |
| y-o-y growth | 17.1% | 20.8% | 5.2% | 14.8% | 13.3% | 11.0% | 8.2% | 5.6% | 3.4% | ||
| Total Wired Internet advertising | 1,129 | 1,165 | 1,220 | 1,239 | 1,316 | 1,393 | 1,468 | 1,530 | 1,575 | 1,607 | 4.1% |
| y-o-y growth | 3.2% | 4.7% | 1.6% | 6.2% | 5.8% | 5.4% | 4.3% | 2.9% | 2.1% | ||
| Mobile paid search Internet advertising revenue | 3 | 27 | 55 | 102 | 143 | 188 | 238 | 290 | 345 | 392 | 22.3% |
| y-o-y growth | 800% | 103.7% | 85.5% | 40.2% | 31.5% | 26.6% | 22.0% | 18.7% | 13.6% | ||
| Mobile other display Internet advertising revenue | 22 | 47 | 94 | 135 | 173 | 208 | 239 | 267 | 291 | 310 | 12.4% |
| y-o-y growth | 113.6% | 100.0% | 43.6% | 28.2% | 20.1% | 15.1% | 11.5% | 9.0% | 6.6% | ||
| Mobile video Internet advertising revenue | 6 | 16 | 28 | 37 | 51 | 67 | 84 | 101 | 115 | 126 | 19.8% |
| y-o-y growth | 166.7% | 75.0% | 32.1% | 37.8% | 31.1% | 25.4% | 20.2% | 14.6% | 8.8% | ||
| Total Mobile Internet advertising | 31 | 90 | 177 | 274 | 367 | 463 | 561 | 658 | 751 | 827 | 17.6% |
| y-o-y growth | 190.3% | 96.7% | 54.8% | 34.0% | 26.1% | 21.3% | 17.3% | 14.1% | 10.2% | ||
| Total Internet advertising | 1,160 | 1,255 | 1,397 | 1,513 | 1,683 | 1,856 | 2,029 | 2,188 | 2,325 | 2,434 | 7.7% |
| y-o-y growth | 8.2% | 11.3% | 8.3% | 11.2% | 10.3% | 9.3% | 7.9% | 6.3% | 4.7% | ||
Source: PwC, Ovum, IAB/Deloitte
What’s new?
Mobile is the main growth engine of the Internet advertising market, yet advertisers are still lagging behind consumer behaviour. Most consumer time is now spent on mobile, but the difficulty of monetising the mobile Internet is one of the reasons advertising revenue is not catching up. In particular, the amount of time spent by consumers in apps is a challenge due to the lack of technologies, such as cookie-based buying platforms and JavaScript quality checks used in Web advertising. Facebook, where users are logged in, is an exception and proves that monetising on mobile can be successful while still delivering a consistent and user-friendly experience. IAB Nederland estimates that just 35% of mobile advertising revenue comes from in-app advertising, despite the majority of consumer time being spent in-app.
New European data protection legislation due to come into force in May 2018 will also have an impact. The new rules will largely replace existing Dutch data protection legislation. But while the new regulatory regime will increase some obligations on advertisers it is unlikely to have a major depressing effect on revenues – crucially, cookie consent will be largely unaffected.
Outlook
Although the lack of screen space may prevent the mobile Internet from ever being as efficiently monetised as desktop, advertisers can’t afford to ignore the shift in consumer behaviour towards mobile. Improvements in mobile ad tech are emerging and will drive further rapid expansion in the mobile advertising market in the coming years.
Ad blocking remains a major and growing problem. One study found that 14% of Dutch Internet users blocked ads. While this rate is not especially high by regional standards, younger users are far more likely to use ad blockers, with 22% of 18-24 year olds doing so. The spread of ad blockers to mobile in the last couple of years threatens the market’s primary source of future revenue growth. Although apps are mostly immune to ad blocking, the continuing rise of the mobile Web in terms of advertising revenue means this has provided relatively little protection. The major mobile platform holders have been forced to adopt contrasting approaches. With little stake in digital advertising and keen to prioritise user experience, Apple has been happy to facilitate ad blocking and plans to introduce further anti-tracking features in the 2017 iOS 11 update of its iPhones.
Google, on the other hand, sees its own ad revenue streams threatened by ad blocking and has had to adopt a more nuanced approach. In June 2017, the company announced plans to introduce a built-in adblocker to its Chrome browsers; in reality, the feature is more of a quality filter, designed to block the most invasive and irritating ads while leaving most advertising unscathed. Most ad blocking users are motivated by the suppressing of overly aggressive advertising but are content with seeing unobtrusive ads; Google hopes to use Chrome’s leading position in the market to render more full-blown ad blockers unnecessary to most users.
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Steven Pattheeuws
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