IAB_Internet_Advertising_Revenue_Report_FY_2012_rev

www.pwc.com www.iab.net IAB internet advertising revenue report 2012 full year results April 2013 An industry survey conducted by PwC and sponsored by the Interactive Advertising Bureau (IAB) PwC Page 2 of 27 Table of Contents Background ...................................................................................................................................................................... 3 Executive summary .......................................................................................................................................................... 4 Detailed findings Historical trends ...................................................................................................................................................... 6 Ad formats ............................................................................................................................................................. 12 Industries ............................................................................................................................................................... 15 Pricing models ....................................................................................................................................................... 17 Advertising market share ...................................................................................................................................... 19 Appendix ........................................................................................................................................................................ 21 PwC Page 3 of 27 Background About the IAB internet advertising revenue report Conducted by PricewaterhouseCoopers LLP (“PwC”) on an ongoing basis, with results released quarterly, the “IAB Internet Advertising Revenue Report” was initiated by the Interactive Advertising Bureau (IAB) in 1996. This report utilizes data and information reported directly to PwC, publicly available online corporate data, and information provided by online ad selling companies. The results reported are considered the most accurate measurement of internet/online/mobile advertising revenues because much of the data is compiled directly from information supplied by companies selling advertising online. All-inclusive, the report includes data reflecting online advertising revenues from websites, commercial online services, ad networks and exchanges, mobile devices, and e-mail providers, as well as other companies selling online advertising. The report is conducted independently by PwC on behalf of the IAB. PwC does not audit the information and provides no opinion or other form of assurance with respect to the information. Only aggregate results are published and individual company information is held in strict confidence with PwC. Further details regarding scope and methodology are provided in the appendix to this report. David Silverman PwC PwC Page 4 of 27 Executive summary 'IAB internet advertising revenue report' 2012 full year highlights Internet advertising revenues (“revenues”) in the United States totaled $36.6 billion for the full year of 2012, with Q4 2012 accounting for approximately $10.3 billion and Q3 2012 totaling approximately $9.2 billion. Revenues for the full year of 2012 increased 15% over 2011. Key trends underlying 2012 results Revenues increase 15% in 2012 — Internet advertising revenues in the United States totaled $10.31 billion in the fourth quarter of 2012, an increase of 12% from the 2012 third quarter total of $9.24 billion and an increase of 15% from the 2012 fourth quarter total $8.97 billion. 2012 full year internet advertising revenues totaled $36.57 billion, up 15% from the $31.74 billion reported in 2011. “These record-breaking numbers represent a paradigm shift when it comes to marketers recognizing the role a multiplicity of screens plays in effectively reaching today’s consumers. Mobile, in particular, soared due to its ubiquity and intrinsic ability to serve as a powerful digital dashboard that travels with you from morning commute to nighttime video viewing and beyond. The significant increase in digital video also underscores the importance of the upcoming Digital Content NewFronts and the vitality that sight, sound and motion play for both consumers and advertisers in the digital era.” — Randall Rothenberg, President and CEO, IAB Mobile advertising increases 111% in 2012 — Mobile advertising in the United States totaled $3.4 billion during the full year 2012, a 111% increase from the prior year total of $1.6 billion. “As smartphones get smarter, cellular networks get faster and user penetration of smart mobile devices increases, the combination of personalization and location will have tremendous appeal to marketers. We are just at the tip of the iceberg.” — David Silverman, Partner, PwC PwC Page 5 of 27 Annual revenues show strong growth 2011 vs. 2012, in billions $31.74 $36.57 FY 2011 FY 2012 15.2% Annual revenues for 2012 totaled $36.6 billion, $4.8 billion (or 15.2%) higher than in 2011. PwC Page 6 of 27 Detailed findings Revenues total a record $10.31 billion in Q4 2012 Total 2012 fourth quarter revenues broke the prior quarter record by $1.1 billion set in the third quarter of 2012. 2012 fourth quarter revenues represented the largest quarter on record, surpassing $10 billion in a quarter for the first time. Fourth quarter 2012 revenues were $1.34 billion (15%) higher than in the fourth quarter of 2011. Q4 11 vs. Q4 12 ($ billions) Q3 12 vs. Q4 12 ($ billions) $8.97 $10.31 Q4 11 Q4 12 14.9% $9.24 $10.31 Q3 12 Q4 12 11.6% PwC Page 7 of 27 Historical annual revenue trends Revenue continues strong growth in 2012 2012 annual revenues increased on a year-over-year percentage and dollar basis. The 19.7% CAGR* has far outpaced U.S. real GDP growth of 1.5%** over the same 10-year period. Annual revenue 2003-2012 ($ billions) * CAGR: Compound Annual Growth Rate ** Source: Bureau of Economic Analysis, U.S. Department of Commerce $7.3 $9.6 $12.5 $16.9 $21.2 $23.4 $22.7 $26.0 $31.7 $36.6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CAGR*: 19.7% PwC Page 8 of 27 Historical quarterly revenue trends Quarterly growth continues upward trend Internet advertising continues to show strong growth from the recession related decline in 2009. After a seasonal related dip in Q1 2012, quarterly revenues continued to increase through 2012, with a seasonal boost of revenue in Q4 2012. Since 2003, 80% of quarters (32 out of 40) have experienced positive growth over their prior quarter. Quarterly revenue growth trends 1996-2012 ($ billions) $0 $2 $4 $6 $8 $10 $12 In b ill io ns 1997 1998 1999 2009 1996 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2012 $10 Q4 2012 revenues crossed $10 billion for the first time PwC Page 9 of 27 Historical revenue mix – first-half vs. second-half Second-half revenues reach $19.5 billion Second-half revenues totaled $19.5 billion in 2012, an increase of $2.7 billion from second-half revenues of 2011, which totaled $16.8 billion. Second-half revenues in 2012 represented 53% of total revenues in 2012, consistent with numbers reported in 2011 and consistent with the broader trend of higher revenues in the second-half of each year. The historically higher proportion of revenues in the second half of the year results primarily from the continued growth in the industry and, to a lesser extent, from fourth quarter seasonality. Historical revenue mix, first-half vs. second-half ($ billions) $3.3 $4.6 $5.8 $7.9 $10.0 $11.5 $10.9 $12.1 $14.9 $17.0 $4.0 $5.0 $6.8 $9.0 $11.2 $11.9 $11.8 $13.9 $16.8 $19.5 $0 $5 $10 $15 $20 $25 $30 $35 $40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 In b ill io ns Last 6 months First 6 months PwC Page 10 of 27 Historical data findings Annual and quarterly revenue growth Revenue (in mil) Q/Q Growth Y/Y Growth Revenue (in mil) Q/Q Growth Y/Y Growth Q1 2001 $1,872 -12% -3% Q1 2007 $4,899 2% 27% Q2 2001 $1,848 -1% -12% Q2 2007 $5,094 4% 25% Q3 2001 $1,773 -4% -10% Q3 2007 $5,267 3% 26% Q4 2001 $1,641 -7% -23% Q4 2007 $5,946 13% 24% Total 2001 $7,134 -12% Total 2007 $21,206 26% Q1 2002 $1,520 -7% -19% Q1 2008 $5,765 -3% 18% Q2 2002 $1,458 -4% -21% Q2 2008 $5,745 0% 13% Q3 2002 $1,452 -1% -18% Q3 2008 $5,838 2% 11% Q4 2002 $1,580 9% -4% Q4 2008 $6,100 4% 2% Total 2002 $6,010 -16% Total 2008 $23,448 11% Q1 2003 $1,632 3% 7% Q1 2009 $5,468 -10% -5% Q2 2003 $1,660 2% 14% Q2 2009 $5,432 -1% -5% Q3 2003 $1,793 8% 24% Q3 2009 $5,500 1% -6% Q4 2003 $2,182 22% 38% Q4 2009 $6,261 14% 3% Total 2003 $7,267 21% Total 2009 $22,661 -3% Q1 2004 $2,230 2% 37% Q1 2010 $5,942 -5% 9% Q2 2004 $2,369 6% 43% Q2 2010 $6,185 4% 14% Q3 2004 $2,333 -2% 30% Q3 2010 $6,465 5% 18% Q4 2004 $2,694 15% 24% Q4 2010 $7,449 15% 19% Total 2004 $9,626 33% Total 2010 $26,041 15% Q1 2005 $2,802 4% 25% Q1 2011 $7,264 -2% 22% Q2 2005 $2,985 7% 26% Q2 2011 $7,678 6% 24% Q3 2005 $3,147 5% 35% Q3 2011 $7,824 2% 21% Q4 2005 $3,608 15% 34% Q4 2011 $8,970 15% 20% Total 2005 $12,542 30% Total 2011 $31,735 22% Q1 2006 $3,848 7% 37% Q1 2012 $8,307 -7% 14% Q2 2006 $4,061 6% 36% Q2 2012 $8,722 5% 14% Q3 2006 $4,186 3% 33% Q3 2012 $9,236 6% 18% Q4 2006 $4,784 14% 33% Q4 2012 $10,307 12% 15% Total 2006 $16,879 35% Total 2012 $36,570 15% PwC Page 11 of 27 Revenue concentration Top 10 companies command 72% of revenues in Q4 2012 • Online advertising continues to remain concentrated with the 10 leading ad-selling companies, which accounted for 72% of total revenues in Q4 2012, up slightly from the 71% reported in Q4 2011. • Companies ranked 11th to 25th accounted for 10% of revenues in Q4 2012, down slightly from the 11% reported in Q4 2011. Companies ranked 26th to 50th accounted for 7% in Q4 2012, down from the 8% reported in Q4 2011. % share of total revenues 0 20 40 60 80 100 2003 2004 2005 2006 2007 2008 2009 2010 2011 72% 89% 82% TOP 10 TOP 25 TOP 50 2012 PwC Page 12 of 27 Ad format – full year 2012 results Search and Display continue to lead ad formats, while Mobile growth remains strong • Search revenues accounted for 46.3% of FY 2012 revenues, consistent with the 46.5% reported in FY 2011. Search totaled $16.9 billion in FY 2012 revenue, compared to $14.8 billion in FY 2011. This 14.5% increase is slightly below the overall industry growth of 15.2%, likely due to a shift to Mobile Search, now captured in the Mobile format. • Display-related advertising accounted for $12.0 billion or 33% of total revenues during FY 2012, up 9% from the $11.1 billion (35% of total) reported in FY 2011. FY 2012 Display-related advertising includes Display/Banner Ads (21% of FY 2012 revenues, or $7.7 billion), Rich Media (3% or $1.1 billion), Digital Video (6% or $2.3 billion), and Sponsorship (2% or $845 million). • Mobile revenues totaled 9% of FY 2012 revenues, or $3.4 billion, up 111% from the $1.6 billion (5% of total) reported in FY 2011. Mobile has experienced triple-digit percentage growth each year since PwC started capturing it in 2010. • Classifieds revenues totaled $2.4 billion or 7% of FY 2012 revenues, down from the $2.6 billion (8% of total) reported in FY 2011. • Lead Generation revenues accounted for 5% of FY 2012 revenues, or $1.7 billion, up 11% from the $1.5 billion (5% of total) reported in FY 2011. • Email revenues accounted for 0.4% of FY 2012 revenues or $156 million, down 27% from the $213 million (0.7% of total) reported for FY 2011. Ad formats – full year 2011 Ad formats – full year 2012 Total - $31.7 billion* Total - $36.6 billion* * Amounts may not equal 100% due to rounding. 47% 21% 8% 5% 6% 5% 4% 4% 1% Search Display / Banner Classifieds Mobile Digital Video Lead Generation Sponsorship Rich Media Email 46% 21% 7% 9% 6% 5% 2% 3% 0% PwC Page 13 of 27 Ad format – fourth quarter 2012 results Search and Display continue to lead ad formats, while Mobile growth remains strong • Search accounted for 44% of Q4 2012 revenues, down from 46% in Q4 2011. Search revenues totaled $4.6 billion in Q4 2012, compared to $4.2 billion in Q4 2011. This 10% increase is below the overall industry growth of 15%, likely due to a shift to Mobile Search, now captured in the Mobile format. • Display-related advertising accounted for $3.4 billion or 33% of total revenues during Q4 2012, up 9% from the $3.2 billion (35% of total) reported in Q4 2011. Q4 2012 Display-related advertising includes Display/Banner Ads (21% of revenues, or $2.2 billion), Rich Media (3% or $326 million), Digital Video (7% or $676 million), and Sponsorship (2% or $241 million). • Mobile revenues totaled 11% of Q4 2012 revenues, or $1.2 billion, up 115% from the $548 million (6% of total) reported in Q4 2011. Year-on-year Mobile growth has exceeded 90% each quarter since PwC started capturing it in 2010. • Classifieds revenues totaled $651 million or 6% of Q4 2012 revenues, up 1% from the $648 million (7% of total) reported in Q4 2011. • Lead Generation revenues accounted for 4% of Q4 2012 revenues, or $446 million, up 18% from the $377 million (4% of total) reported in Q4 2011. • Email revenues accounted for 0.4% of Q4 2012 revenues or $41 million, down 45% from the $75 million (0.8% of total) reported for Q4 2011. Ad formats – Q4 2011 Ad formats – Q4 2012 Total - $8.97 billion* Total - $10.31 billion* * Amounts may not equal 100% due to rounding. 46% 22% 7% 5% 4% 6% 4% 4% 1% Search Display / Banner Classifieds Digital Video Lead Generation Mobile Rich Media Sponsorship Email 44% 21% 6% 7% 4% 11% 3% 2% 0% PwC Page 14 of 27 Historical format trends Search retains largest share of revenue, while Mobile grows fastest • Search remains the leading format, having strong sequential growth through this period. • All formats other than Digital Video are down slightly as a percentage of total revenue due to the substantial growth of Mobile. • Mobile revenues showed the strongest growth of any format, representing 9% of total revenues in 2012 compared to 5% reported in 2011 and a negligible share as recently as 2009. • Mobile growth should remain strong, with some features still untapped, such as location-based targeting and other innovative offerings and services that are simply not possible on computers. Advertising format share, 2006 - 2012 (% of total revenue)* * Format definitions may have changed over the time period depicted, both within the survey process and as interpreted by survey respondents. 0% 10% 20% 30% 40% 50% Search Display Banners Classifieds Mobile Digital Video Lead Generation Rich Media 2006 2007 2008 2009 2010 2011 2012 The surge in Mobile growth can be attributed to: • Growth in device penetration (Smartphone and tablet), led by Apple and Google • Faster connection speeds as 4G / LTE adoption is fueled by infrastructure and device upgrades • Improved screen resolutions that can squeeze more ads onto the mobile screen • Increased sophistication in incorporating ads into mobile apps and websites • Shifting social media consumption onto mobile devices PwC Page 15 of 27 Ad revenue percentages by industry category Retail drives advertising, as dollars shift to digital • Retail advertisers, despite an overall decline, continue to represent the largest category of internet ad spending, accounting for 20% of revenues in 2012, down from the 22% reported in FY 2011. • Telecom companies accounted for 11% of revenues in 2012, down slightly from the 12% reported in FY 2011. • Financial Services advertisers accounted for 13% of revenues in 2012, consistent with the 13% reported in FY 2011. • Automotive advertisers accounted for 12% of revenues in 2012, up from the 11% reported in FY 2011. • Computing products advertisers represented 8% of revenues in 2012, down from the 9% reported in FY 2011. • Leisure Travel (airfare, hotels, and resorts) accounted for 9% of revenues in 2012 up from 8% reported in FY 2011. • Consumer Packaged Goods represented 7% in 2012, up from the 6% reported in FY 2011. • Entertainment accounted for 4% of 2012 revenues, consistent with the 4% reported in FY 2011. • Media accounted for 5% of 2012 revenues, consistent with the 5% reported in FY 2011. • Pharma/Healthcare accounted for 6% of revenue in 2012, up from the 5% reported in FY 2011. PwC Page 16 of 27 Industry advertising – year-over-year comparatives Internet ad revenues by major industry category*, 2011 vs. 2012 * Industry definitions may have changed over the time period depicted, both within the survey process and as interpreted by survey respondents. Amounts do not total to 100% as minor categories are not displayed. 22% 13% 11% 12% 8% 9% 6% 5% 5% 4% 20% 13% 12% 11% 9% 8% 7% 6% 5% 4% Retail Financial Services Auto Telecom Leisure Travel Computing Products Consumer Packaged Goods Pharma & Healthcare Media Entertainment 2011 2012 PwC Page 17 of 27 Revenues by pricing model Performance-based pricing gains interest • Approximately 66% of FY 2012 revenues were priced on a performance basis, up from the 65% reported in FY 2011. • Approximately 32% of FY 2012 revenues were priced on a cost per medium/thousand (CPM) or impression basis, up from the 31% reported in FY 2011. • Approximately 2% of FY 2012 revenues were priced on a hybrid basis, down from the 4% reported in FY 2011. Pricing models – FY 2011 Pricing models – FY 2012 Total - $31.7 billion Total - $36.6 billion Pricing models – Q4 2011 Pricing models – Q4 2012 Total - $8.97 billion Total - $10.31 billion CPM 31% 65% Hybrid 4% CPM 32% 66% Hybrid 2% CPM 32% 64% Hybrid 4% CPM 34% 64% Hybrid 2% Performance Performance Performance Performance PwC Page 18 of 27 Historical pricing model trends Performance-based pricing remains the preferred model Performance-based pricing, the most prevalent pricing model since 2006, has maintained a strong sequential growth rate, reaching 66% in 2012. It is followed by CPM/impression-based pricing, which has stayed consistently at around 32% to 33% over the past three years. Hybrid pricing experienced the greatest loss in percentage revenue over the period, falling from 13% in 2005 to 2% in 2012. The continued decline of Hybrid is likely a result of the maturation of the market for the purchase and sale of internet advertising, with spend budgets increasingly allocated to specific, measurable outcomes. Internet ad revenues by pricing model* * Pricing model definitions may have changed over the time period depicted both within the survey process and as interpreted by survey respondents. 46% 48% 45% 39% 37% 33% 31% 32% 41% 47% 51% 57% 59% 62% 65% 66% 13% 5%