Online ad spending in the US is growing more rapidly than any other advertising medium, is reaching new heights seemingly with every passing quarter, and has been projected to see double-digit growth again this year. In fact, the IAB estimates that online ad spending has grown at a compound annual rate of about 20% over the past 10 years. But to what extent is this meteoric rise simply a result of marketers chasing a growing online population? Removing inflation from the equation, is each individual internet user worth more to advertisers today than a decade ago? This article pulls together data from various sources to measure the real growth in spending per online user from 2000 through 2012.
First off, the top-line result: yes, each online user is definitely worth more today to advertisers than in the past, a result that really does not need to be shouted from the rooftops. But it’s more interesting to see by how much more, and to what extent the online population size factors in.
Last year, as the above chart shows, advertisers spent an estimated $144 (in nominal dollars) reaching each online user, which is exactly 4 times the amount ($36) from 2002, when this figure was at its lowest since the start of the century. When measured against spending from 2000, the 2012 figure reveals slower (though not weak) growth. From 2000 to 2012, the data shows that nominal ad spend per user more than doubled, from $67 to $144.
(The drop in spend per user between 2000 and 2002 illustrated in the chart was due to a roughly 25% fall in online ad spend, coupled with a rapid 39% rise in the online population.)
When factoring in inflation by making the spending constant to 2000 dollars, online ad spending growth is more muted, though again not weak. The chart shows that online ad spend per user, in constant dollars, grew by about 60% between 2000 and 2012 (from $67 to $108), and has more than tripled since 2002.
Looking at data from the past decade (comparing figures from 2012 to 2003), the analysis reveals that:
Meanwhile, the online population grew by about 42% between 2003 and 2012 (from an estimated 179.1 million to 254.4 million).
In combination, inflation and the rising online population account for about 43.5% of nominal spending growth over the past decade. In other words, online ad spending – in constant dollars – has outpaced inflation and online population growth by about 56.5% over the past decade.
All told, the analysis reveals that for every dollar spent on an online user in 2003, advertisers are now spending about $2.84.
So how does the $144 per user measure up against the biggest advertising medium, TV? A back-of-the-envelope calculation suggests online ads aren’t yet valued as much as TV ads, which advertisers are spending around $225 per viewer on.
(That calculation was made by taking PwC’s estimate of TV ad spend last year – $63.6 billion – and dividing it by an approximation of the number of 2+ viewers taken from recent Nielsen reports, of 284 million.)
Online advertising channels have evolved significantly since 2000. The above chart examines 4 selected segments of online advertising that have been tracked by the IAB and PwC since 2000: display-related; search; classifieds; and email.
Back in 2000, online advertising was dominated by display-related formats, to the tune of 81% share of total spending. With the advent and massive growth of search advertising, though, by 2004, the share of spending held by display-related formats had been cut in half, to 39%, replaced primarily by paid search, which rose from a fractional 1% share of online spending in 2000 to 40% share in 2004. In that time period, classifieds also became more popular, jumping from 10% to 18% share, while email declined, from 3% to 1% share.
Between 2004 and 2011, the patterns changed somewhat. Search continued to increase its share of spend, rising to 47% share of online ad spending in the US by 2011. After its big fall between 2000 and 2004, display-related advertising largely stabilized, though its share in 2011 still hadn’t recovered to levels from 2004 (35% vs. 39%). Classifieds, meanwhile, accounted for a decreasing share of spend, down almost 50% from 2007 to 2011 alone. And in 2011, email accounted for a fractional 0.7% share of online ad spending.
Last year, search’s share of spend retreated marginally, but not because search has become less of a priority. Instead, the IAB started counting mobile search spending in its mobile category rather than its search category. (Various sources suggest spending on mobile search is doubling year-over-year with each passing quarter.)
Paid search’s growing share of online ad revenues translates into an ever-increasing amount of spending per user, even when controlled for inflation and growth in the online population. Back in 2000, when search advertising was nascent (and the IAB referred to this revenue source as “keyword search”), advertisers spent $0.67 per online user on this channel. By 2004, that had jumped to $18, and this spending has not looked back since, rising to $32 in 2007 and $52 last year (in constant dollars), even as the IAB began to count mobile paid search in the mobile category rather than the search category. (That was likely a big factor propelling mobile to 9% share of revenues last year.)
While display’s share of spend has largely stalled in the snapshots taken from 2004-2012, rising spending overall means that greater amounts are being spent per user on display-related advertising, too. After taking a tumble from $54 per user in 2000 to $18 in 2004 (due primarily to a loss in spending share), display-related advertising has since more than doubled in per-user spend, to $37 last year.
The chart also tells a different story for classifieds. While this segment’s share of spend has been on the decrease, the amount of money spent on this format per user (in constant dollars) in 2012 ($7.42) isn’t far behind per-user spend from 2004 ($8.32), when classified advertising was a far more influential segment.
Of course, search advertising is not the only advertising channel to see tremendous growth. Below are a few hand-picked links to recent MarketingCharts articles detailing key trends for other formats – including mobile, online video and social media – as well as for paid search.
About the Data: The following method was used to calculate online ad spending per user in constant (2000) dollars:
Notes: This article uses data from: the International Telecommunications Union (ITU – tracking the % of Americans online); the US Census Bureau (US population estimates); and the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC – US online advertising spending).
The calculation for the number of Americans online differed from US Census Bureau estimates regarding the online population, which are only available until 2010. The calculation using ITU and Census Bureau population data was used to maintain consistency in tracking multi-year trends. (For this reason, it’s perhaps more important to look at the direction of the results rather than the actual numbers.)
The IAB spending figures are calculated for each full year, whereas the Census Bureau population estimates are from the Fall of each year (save for 2000, when the estimate is for the Spring). It is unclear from what time of year the ITU data is sourced.
In some cases, the IAB did not provide an aggregate spending amount for the selected online advertising segments. For those years, the total spend in constant (2000) dollars was calculated by multiplying the indicated share of spend by the total revenue figures, and adjusting for inflation.
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