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By Thomas Baekdal - November 2013

Projected Advertising Spending: Online vs Traditional

Steve Gray over at INMA wrote a good article about the shift from print to online advertising.

But I want to put into question this one graph used in the article. It shows the projected change in advertising channels from now to 2018. And it looks quite spectacular. Print newspapers will grow, and so will radio. TV will drop slightly as will direct mail and 'other'. And cable TV and Cinema will grow.

But look at 'online'. It's 'projected' to grow about 450% over the next five years ... which I highly doubt.

Yes, over the past five to ten years, online advertising has experienced a tremendous boost as more and more brands shifted their budgets to digital. But, that was also all they did... they shifted it.

So whenever I see a graph that projects that one channel is going to increase disproportional to the drop of all the other channels, I get really worried. Where is that money coming from?

Brands don't just suddenly spend 4.5 times more than they did five years ago. We don't have that kind of economy. I would accept smaller variations, but not this kind a sudden explosion of the overall marketing budgets.

It looks much more to me like the classic analyst mistake. You take the projected curve of the past, and then you just continue it into the future. That's not likely to happen.

When I look at the trends, we seem to be very close to reaching the upper limit of the online shift, in which it can't grow any further because it would mean we would have to add more money. In fact, I think we have already reached the point of which the growth of online advertising is starting to slow down and stabilize.

In fact, online, as in desktop browsing, is already dropping and being replaced by mobile:

There are three circumstances that will make online advertising grow a little longer.

We are still very much in the shift. Most brands 'still' spend only 25-35% of their marketing budgets online. It sounds small, but consider that we have 11 channels here. If each of the other channels only had 5% market share on average, that would only leave 50% to online.

In other words, online will max out in 2015-2016 at only twice of what it is today.

Digital allows small business owners to advertise. With print, many small business owners couldn't afford buying that full-page ad... and the small classified ads don't work anymore (outside sites designed for that purpose).

But online, you can pay only $15 to promote a post on Facebook. That opens up a new source of revenue for 'online', but it's all small payments.

The graph is highly misleading by design. It's lumping all the online channels into a single category while illustrating print/non-digital channels in separate categories. So 'online' will grow, but it's not because it's growing. It is merely because other channels will be categorized as online too.

But this is not actually what we see in the graph. We see no change in categorization that would justify the growth in online. They are projecting that online will grow without any substantial change with the other channels.

It's contradicting itself.

Growth is always the result of a change in consumer behavior, not actual growth. We have a finite amount of money and resources. So we can't grow one thing without experiencing a decline in something else.

That's why it's called change.

The same is true for people. Think of social. There is no doubt that social media has experienced a tremendous and incredible growth over the past 10 years. But it's not because we suddenly have more time to spend. It's because we spend our time differently than in the past.

No matter what we do, there is still only 24 hours per day. We can't grow beyond that. You can't suddenly have 28 hours of consumption per day.

Growth = a change in priorities.

This is why I don't believe the graph is right. It's projecting that online will grow 450% over the next five years, but it doesn't explain where that extra resources are coming from.

Think of it like this: If brands are already spending 25-35% online, growing 450% would mean that in five years they will spend 110-160% of their budgets on online. Of course, this is a simplistic calculation that doesn't take into account that not all of the marketing budget is spent on advertising.

My prediction?

First of all, if I take on the role as a futurist for a moment, you always have to remember that futurists don't predict the future. We analyze the trends to point you to the most optimal future for you to create.

In other words, we do probabilistic analysis.

And with that in mind, from a probabilistic spectate, the trends indicate that have already reached the point in which online growth is starting to slow down. We don't have that much to change from anymore because all the other channels that we can grow from are running low.

How much online might it still grow before it flattens out depends entirely how we categorize it.

If we look at marketing budget spending, people today are spending 40% of their media consumption time online while brands are spending about 25-35% of their budgets on 'online'.

That's not the issue though. The real issue is that brands are spending roughly 50% of their budgets on print, but print only takes up 4% of our media consumption time. So there is a huge disconnect.

And from that perspective the online share of brands' marketing budgets is likely to double, from 25-35% to 50-70% over the next five years.

Note: I'm not saying that media consumption and media budgets should be perfectly aligned. They shouldn't as some channels are better than others. But it's clear to anyone that brands spend huge amounts of money on print out of habit and not as a result of sales analytics.

However, if we categorize every traditional channel as 'online' as it transforms to online services, we are looking at a rough increase in online of 300%. That is how much online can grow if all of the old newspapers, TV, cable and radio channels convert to digital.

But I don't believe this will happen over the next five years. It's going to take much longer to transform all of the old channels to online. The shift itself happened extremely quickly, but once we reached the laggers everything slowed down dramatically (as I also wrote much more about here):

So from that perspective, I would think it is a likely that online would grow between 50-150% over the next five years. We won't get anywhere close to 450% as projected in the graph.

To achieve this, however, we have to take the money away from something else. This means that all the other non-online channels combined will drop to roughly 2/3 of what they are today.

And we also have to consider that the internet is increasingly allowing brands to go direct, which means that instead of spending their budgets on advertising on 'other sites' they will spend more of it on communicating directly with people on their own channels.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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