Andrew Harrison: Why does the UK dominates internet ad spend?

At a recent media conference, two questions from the audience really set me thinking. “Why does the internet command a much bigger share of ad expenditure in the UK than anywhere else in the world?” was the challenge from the floor – with the logical follow-up question then being: “Is the UK likely to stay way ahead of the curve, fall back or will the rest of the world inexorably catch-up?”

So, I started to do quite a lot of research in this area and it’s quickly become clear that there’s no definitive answer – but lots of wisdom and hypotheses from the best thinkers in UK media. So, here are my top six theories based on conversations with those thinkers.

No doubt readers will have other pieces of the jigsaw as well:
1) The UK has an unusually well developed digital technology base: broadband penetration is higher than many other markets – but also digital applications, across mobile, TV, radio and so forth, are often at the leading edge. For example, we are one of the first nations to switch exclusive­ly to digital TV and are world-leaders in DAB radio. This makes advertiser, creative and consumer literacy/fluency higher than most other markets (but not all of course).

2) The UK is small geographically. This means the online retail/home delivery market is much better developed here than in many other markets – especially in some sectors that are fledgling elsewhere (eg, in groceries where tesco.com or Ocado are, relatively, much bigger players than online offers in other markets). This has accelerated the relevance and attractions of internet ad expenditure ahead of other markets.

3) The UK is an English-speaking territory. This sounds obvious (it is!) – but in practice the software leadership, creative industry, and advertiser experimentation of the digital world is English-language led. Most global corporations have English as the company language. The world’s great digital corporations – Google, Microsoft, AOL, Yahoo! – all work in English. So that puts the US and UK at a huge competitive advantage. Then, you quickly realise, the UK is a much smaller market to test in (and de-risk) than the US. So, it’s logical that it will take a disproportionate share of spend as a lead market for the rest of the world.

4) London is a unique creative hot-house. There is an extraordinary concentration of digital agencies, ad agencies, media agencies and creative talent within two or three square miles in central London. Leading global advertising groups, like WPP, sit within a five-minute walk of the world’s leading digital talent. Combine this with the location of regional or global HQs for many advertisers and you get a massive over-inflection. In this respect, London drives confidence and experimentation in online that is impossible for diverse centres of excellence in, for example, Seoul or Chicago or Buenos Aires to replicate.

5) The UK, uniquely, is home to the BBC. This has many layers of significance. First, it gives us a well-funded market leading digital media player (think www.bbc.co.uk, think the BBC i-player) when the leading media players in traditional media are US or Far East based – NewsCorp, Sony BMG, TimeWarner et al. Second, because the BBC dominates UK broadcasting, the percentage of ad revenues in UK shared between TV and Radio is much lower than elsewhere. For example, in the US, with no BBC, radio accounts for twice the display ad revenue (at 13% in US versus 6% in UK) than here. The consequence of this is that the % share gained by digital revenues is higher because the base share held by traditional broadcast is lower in the UK.

6) Finally, the UK has a traditionally well-established (and over-developed) classified ad tradition – especially in sectors such as property ownership. We have a long history of press readership at both a national and a local level. Yet, we know classified ads transfer particularly well online and our regional press, in particular, has suffered a disproportionately high erosion of its historical advertiser base.

These are theories – comments welcome – but I think it’s clear there’s something in their combination which is somewhat unusual. It says to me that the UK will set the pace for the world for a fair while yet. But it also suggests the UK is likely to be the exception rather than the norm.