According to figures from ZenithOptimedia, global advertising revenues will reach $486 billion in 2012, a rise of 4.7 percent compared to 2011. With wider economic pressures bearing down on the overall ad market, digital ad spend is still seeing healthy growth: it will account for slightly more than one-fifth of all ad spend, but more than half of all growth, as advertisers become more confident in digital media metrics, and the ad industry gets more sophisticated in what it offers to brands and publishers in the name of digital advertising—which will remain a key way of funding digital content, as media companies continue to tinker with other charging models. Here are some specific areas to watch in this space:
Social media and advertising. Social networks already make money from marketing and advertising services—according to an estimate from eMarketer in September, Facebook apparently will have made some $3.8 billion in advertising revenue in 2011—so 2012 will be the year that we see more social networks, not just Facebook, look at leveraging their audiences to grow this even more.
These advertising services will be a crucial piece to put into place for Facebook in particular as it gears up for a widely-expected IPO. Keeping in mind recent IPOs for Groupon (NSDQ: GRPN) and Zynga, in which people questioned the longer-term business models for these social media properties, Facebook will be looking for big and consistent sources of revenue to demonstrate to the investor community that it has a solid foundation for the long haul.
As my colleague Jeff pointed out, they may also be the source of more debates about online privacy. Facebook has already started laying the groundwork for how it might draw on the content and nature of a users’ activity on the site as a route to promoting products and services to others within users’ timelines. Similarly, Twitter is moving to new ways to advertise brands to users, for example, with promoted tweets populating people’s timelines. There are very likely more innovations along these lines in the pipeline.
New ad formats on social networking sites may, to some, feel like a violation of an individual’s space, and we may see more challenges and questions coming from regulators and users as a result. On the other hand, some argue that if these services free to use, this is the price to pay. What might equally be interesting is to see whether ad-driven sites like these at any point consider paid, ad-free versions of their services.
Ads get a bit more personal. I don’t think that it will be only social networking sites that make use of our personal information in new ways in advertising. Companies like Google (NSDQ: GOOG) are also looking at ways of leveraging its databases to make its advertising units more valuable. One example is a new search ad format that automatically inserts your gmail address to sign you up for marketing lists if you click on a link in the ad. The other area that is worth watching here is mobile advertising, where an advertiser uses potentially a combination of an opted-in user’s location, browsing activity and purchasing habits to deliver relevant ads and offers to consumers.
Consolidation: small, medium and large? Last year saw some significant acquisitions that pointed to ongoing consolidation as digital advertising continues to mature: Google’s $400-million AdMeld purchase (which officially closed earlier this month); ValueClick’s $75-million acquisition of mobile ad firm Greystripe; and Adobe’s purchase of Efficient Frontier, all of which further pad out the bigger companies’ ad services business.
There will very likely be at least a few more deals like these, but the question is whether consolidation could also extend to bigger players like Yahoo (NSDQ: YHOO) and AOL (NYSE: AOL). They are still some of the strongest companies in online advertising (with 13.1 percent and 4.2 percent of the overall display market, according to eMarketer) but they are being hit hard by companies like Google and Facebook, once known respectively for search and social ads but already now bigger than AOL and Yahoo in display revenues.
If you believe the reports, Yahoo is already in play: Alibaba, the China-based internet giant that is a parter of Yahoo’s in that country, currently wants to buy Yahoo out of China, but Jack Ma, Alibaba’s founder, apparently also has an option to buy Yahoo outright, too. He has already enlisted the help of lobbyists in Washington, which could prove useful if Ma decides to bite.
As for AOL, it recently had to weather an embarrassing leaked letter from one of its biggest investors, Starboard Value, ripping apart the company’s business strategy and accusing it of focussing too much on “money-losing” areas like its content business. AOL’s CEO Tim Armstrong’s response has been: be patient. But if things don’t start looking brighter for AOL in 2012, investors like Starboard could take things up another notch and call for something a little stronger.