Revenue from internet advertising rose by 12.2% between 2019 and 2020, despite the pandemic that the world has gone through. Between 2018 and 2019, the YoY growth of advertising revenue was higher, specifically by 15.9%, according to the just-released PwC & IAB Report. The declining pace between 2019 and 2020 was due to the slashed marketing budgets of affected businesses at the beginning of the year.
Globally, GDP declined by 3.5%, with this economic performance the worst since the Great Depression. The first part of 2020 took the heaviest blow, as this was the period when the pandemic took its toll, prompting governments around the world to mandate a lockdown.
The resilience of advertising revenue in 2020
Despite a bad head start, we saw the advertising revenue recover by Q3. The second quarter of the year took a heavy dive at a decline of 5.2%, however, this was expected since the lockdowns were mandated sometime in March.
The third and fourth quarters were good as shown below:
- 2020 Q3 growth – 11.7%
- 2020 Q4 growth – 28.7%
The last quarter of the year had a heavy yet positive impact that came from the elections in the United States. Alongside this, the holiday season helped drive the growth of advertising revenue.
88% of surveyed CEOs are optimistic that economic growth is coming in 2021. By this time, people all over the world have already gotten used to the situation, and there is optimism due to the various kinds of vaccines that are now available.
This optimism brings us to the actions that investors are willing to take. 26% of CEOs who were interviewed said that they are likely to significantly increase investments in the next three years following the surge of the COVID-19 pandemic.
What happened in 2020?
2020 was not an action-filled year, but it was still the most challenging time for various economies. Let us take a look at the two key highlights for the advertising market.
Digital advertising revenue – declined in the first half but bounced back in H2. Overall, revenues for the year from advertising were at $59.3 billion in the first half. This was lower by 2.4% compared to the same period the previous year.
Change in marketer behavior – many marketers and media buyers changed their behavior in 2020. Marketers today are much more tactical rather than strategic. Instead of buying long-term advertising assets, marketers make smaller investments for shorter periods of time.
2020 is a year that was full of disruption. Despite many people opening up online businesses, advertising investment was low because sales were also at a slump.
Breaking it down
How did we fare in 2020 based on different factors? Did mobile perform better? How about social? Let us break it down to further understand what went on last year.
Mobile performance
This sector was in a healthy state. People stayed indoors and pretty much had nothing to do but to use their phones for e-commerce transactions. This trend will continue in 2021, as we expect more people to stay outdoors and be on the move.
The forced lockdown changed how businesses offered their services. There was a surge in delivery options, and many brands responded by offering more digital services to their patrons. As more businesses continue to embrace the realization that home deliveries are a profitable business, we can expect more ads streaming on mobile devices.
Social performance
Social media is bulletproof. The pandemic has little effect on social media advertising, as seen by how it performed. In 2020, revenue from social media advertising was $41.5 billion. This is a 16.3% increase compared to 2019. Overall, social media now accounts for about a third of all internet ad revenues.
Digital video performance
Across mobile and desktop, video advertising grew by 20.6% as of 2019. Despite this, the vast majority of the growth was in the mobile space, which hit a revenue of $185 billion in 2020 — 25.3% bigger than 2019. What is not clear is whether this growth is an anomaly or not.
Experts at PWC believe that this performance is a signal of a new trend — video ads are now catching up with image ads, and advertising revenues are expected to see an increase in 2021 and the years to come.
One other thing we need to look at is audio advertising — not too common but still a profitable advertising class on podcasts and other audio-based platforms.
In 2020, revenue from audio ads was sustained at $3 billion. While it pales in comparison with social and mobile ads, it still had a growth of $400 million compared to 2019. It is expected the podcast ad revenues will grow by at least 55% in 2021.
2021 and beyond
What is in store for ad revenues and what are the forecasts? There is no wide optimism about major changes in 2021, but rather a pessimistic one. There is a belief that players are not fully equipped to embrace new operating models in the cookieless environment and evolved data-sharing relationships.
As highlighted by IAB, the key things that the advertising industry must focus on are as follows:
Value of exchange to be revisited – many consumers no longer believe that free goods are enough for them to be bothered with ads. More and more people are now supporting ad-free content streaming, and they are willing to pay. Examples of these are Netflix and other streaming channels.
Walled Gardens - as of yet the industry is not ready to lose cookies. When 3rd party identifiers go away, advertising platforms will have a hard time developing new targeting solutions. Walled Gardens are the companies that have first-party data like Facebook or Google, and advertisers risk finding themselves too reliant on them in the next few years to come.
Consumer identity alignment - today, the advertising industry is reliant on targeting based on the critical components of consumer identity, such as demographics or geographic location. There are more opportunities for ad tech players to unite their efforts and develop new privacy-compliant identity solutions.
Performance-based marketing - one challenge today is that as third-party identity models go away, advertising results may be difficult to commensurate to the advertising dollars spent. So far, new privacy-compliant formats that support clear attribution of efforts to business outcomes are likely to take a significant portion of the market.
Trust gaps – there are significant privacy issues surfacing in the advertising market and driving new privacy regulations across markets. As more and more laws are enacted to protect users’ privacy and identity, publishers and other players within the internet ecosystem are expected to motivate consumers to continue to share data in a mutually beneficial way.
The growth of the advertising industry will depend on several factors. Examples of these are upcoming privacy regulations, return on ad spend, growth of revenue of advertisers, and the lifetime value of consumers.
The pandemic has opened new doors for the advertising industry, and it also provided an avenue for new realizations. The future of the advertising industry is in the hands of the ad tech platforms. They have to find a balance between consumer privacy rights, advertiser return on investment, and their own revenue — we can only surmise that a major technological revolution is coming, and this is going to affect the industry soon.
