Agencies take the Net to their hearts as clients and budgets shift online

As widely predicted, UK online ad spend broke through the 2bn barrier in 2006, recording a 41.2% surge in growth as marketers moved budgets online. The figures from the Internet Advertising Bureau (IAB) in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC), mean the Web’s share of all advertising revenues rose to 11.4%, up from 7.8% in 2005.

As widely predicted, UK online ad spend broke through the £2bn barrier in 2006, recording a 41.2% surge in growth as marketers moved budgets online. The figures from the Internet Advertising Bureau (IAB) in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC), mean the Web’s share of all advertising revenues rose to 11.4%, up from 7.8% in 2005.

This huge growth served to prop up the entire ad industry, which grew by 1.1% in 2006 but for which expenditure on traditional media fell. Online ad spend in 2006 has overtaken national newspapers’ £1.9bn spend with its 10.9% share and was just over half the size of TV advertising, which fell by 4.7% to £3.9bn.

According to IAB chief executive Guy Phillipson “We will see 2006 as a vintage year for the internet”. He says three factors contributed to online advertising’s success: the rise of high-speed wireless broadband access, consumers spending more time online and the fact that it is now a proven medium.

The UK is world leader in terms of online’s share of ad spend, and Phillipson commends UK marketers for embracing the Web so enthusiastically. He says: “They definitely seem to be taking to the Net. They can see it’s a proven medium and online budgets are growing by twoor three-fold.”

Tribal DDB client services director Craig Morgan agrees that more marketers are looking to online. “Our business increased about 35% over the past year, and we are seeing companies that have traditionally shied from the Net adopt the channel for loyalty programmes and brand building – not just display advertising,” he says. “Marketers are being more creative, and more advertisers are using the medium as an experiential tool. Last year we devised campaigns for Johnson & Johnson and Exxon, which used the Net to develop their brands.”

Phillipson concurs and says that increased file sizes and bandwiths have helped boost the medium, while the rise of user-generated content has helped brands understand how consumers behave and how they are involved in the communications process. “Marketers’ briefs have become more progressive while agencies are creating more innovative and entertaining content,” he adds.

Although online’s share of ad spend is on the rise, marketing budgets are not, and there is clear evidence that internet advertising is benefiting from a migration of spend as opposed to advertisers adding to their marketing coffers. This shift has made agencies sit up and take note. For several years, traditional shops busied themselves with setting up digital arms that were add-ons to their existing offer, but in recent times they have shifted their strategy again. Carat and Starcom, for example, recently restructured, reintegrating digital into the main body of the outfits, eager to take a slice of the online pie. Meanwhile WPP Group chief executive Sir Martin Sorrell announced that online accounted for 15% of the group’s revenues last year and he envisages that in ten years, this will double. Finally agencies are taking online as seriously as their clients, and observers say that the rise in digital is definitely being driven by clients.

“These are very positive moves, putting digital at the heart of their operations,” says Phillipson. “But in the creative arena, the digital shops still have the upper hand, although the most recent members to the IAB have come from the traditional creative sector. While creatives have key strengths in traditional advertising, they have yet to master how to integrate that into the digital world.”

While the future for online looks bright, there is a risk of complacency in the digital ad industry, warns Morgan. “It is essential that agencies are aware of the fact that budgets are migrating – not growing. Brands may be embracing online, but too many digital agencies expect to be handed accounts on a plate. We still have a job to prove digital’s worth as part of the marketing mix,” he adds. “And while there are many instances of brands creating digital rosters, this does not necessarily translate as a greater commitment to online nor does it mean they are taking steps into digital.”

Morgan also points to the fact that while media spend online is increasing, marketers and agencies must be conscious of the fact that more investment is needed for creating innovative content. “We need be creating experiences and engaging consumers. It is essential to look beyond online as a media channel,” he continues.

BSkyB director of online and partner marketing Scott Gallacher agrees. He says that Sky has shifted its focus and, unlike many brands, is not merely paying lip service to its digital marketing: “Our commitment to online is real. For us online is a pillar of our marketing strategy – not just an add-on.” Gallacher explains that as Sky itself has become more of an online business it has had to adapt and ensure it is advertising in places where customers can find the brand and its products and services easily. Sky has ploughed about £20m into online display advertising, and Gallacher says this makes it among the biggest media channels adopted by the company.

He says the media owner has pioneered digital advertising methods, adopting behavioural targeting nine months ago and making progressive moves at the moment into the mobile space. “We’ve made many innovative moves online, but don’t necessarily highlight the fact. All this shouting about it is not needed. Advertisers should be delivering value rather than evangelising about online,” he says.

Gallacher says that although advertisers are embracing the internet, much work remains to be done for many brands. “They must remember that digital advertising is not just about pushing messages – it’s about giving something back to consumers. Online campaigns, be they affiliate programmes or ad banners, must be relevant and engaging.”

User-generated content and the sites, such as MySpace and YouTube, that have enjoyed considerable success on the back of it, garnered swathes of press coverage last year. This coming year, there is much talk of the rise of rich media content (page 34) and the mobile internet, but Gallacher warns that these formats remain small and “are a little over-egged”. “These formats are important, but a small percentage of advertisers are actually using them at the moment, and while their usage will rise, it’s important to never lose sight of the fact that online ads need to be interesting, engaging, interactive and relevant.”

By Nathalie Kilby, associate editor, Marketing Week

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