US Online Ad Revenues Grow by 21% in 2017: 10 Notes

May 16, 2018

Online ad revenues in the US grew by 21.4% year-over-year in 2017 to total $88 billion, per the latest revenue report from the IAB and PwC [pdf]. Revenues for the fourth quarter were up by about 21% year-over-year as the shift to mobile continued. Here are 5 takeaways from the report.

1. Mobile Takes Greater Share, but Growth Slows

Mobile’s share of online ad revenues – which first reached a majority in full-year 2016 – grew to 56.7% in 2017 on the back of a 36.2% increase in revenues.

Mobile ad spending has slowed in comparison to prior years, though: in 2016, mobile advertising revenues increased by a larger 77%.

Nonetheless, mobile advertising has exhibited quite the surge in recent years – with a compound annual growth rate of 71.4% over the past 5 years.

2. Desktop: Not Dead

Desktop advertising revenue declined by almost 8% in 2016 (from $38.9 to $35.9 billion), suggesting that mobile’s growth may have been starting to come at the expense of the larger screen.

However desktop ad spending rebounded last year, with a 5.8% increase to $38.1 billion, almost reaching 2015’s record level ($38.9 billion).

3. Search Remains Dominant, but Video’s on the Rise

Search continues to be the single dominant format in US online advertising, exceeding $40 billion ($40.6) in 2017. That represents a 17.5% year-over-year increase from 2016’s total.

Still, that growth rate was slightly under the average for all formats, leading to a drop in search’s share of total online ad revenues. This past year search captured 46% share of revenues, down from 48% in 2016. Those two percentage points migrated to video, which grew to account for 14% of all online ad revenues, as video ad spend jumped by 33% to $11.9 billion.

As a result of video’s growth, display revenues (in this case banner, sponsorships, rich media and video) totaled 45% of all online ad spend, almost matching search’s share (46%).

The IAB and PwC study also lends more weight to “Other” categories in this latest edition, at almost one-tenth (9%) of revenues. Growth in “other” categories beyond search and display totaled 19.2% in 2017, driven by Lead Generation, Audio and Classifieds.

4. Banner Ads Far More Influential on Mobile

A closer look at the distribution of ad spend by format shows that the leading areas differ by device. Search is the leading format on desktops, with 49% share of all spending, unchanged from 2016.

By contrast, display is the leader on mobile, accounting for half of all revenues. Banner ads in particular are a much greater player on mobile than desktop, representing 37% of spend on mobile devices against just 24% on desktops.

Search’s share of mobile ad revenues, meanwhile, dropped a couple of points to 44%, despite a much stronger growth rate (31%) on mobiles than on desktops (4%).

5. Video Ad Spend Now Larger on Mobile Than Desktop

Video actually captured a slightly larger share of ad revenues on desktop (15%) than on mobile (13%) last year, per the IAB’s report.

But by virtue of mobile’s larger position in the online advertising market, mobile video spending ($6.2 billion) surpassed desktop video spending ($5.7 billion) for the first time.

It looks as though mobile will put desktop in the rear-view mirror too, as video revenues grew at a much faster clip on mobile (53.5%) than on desktop (16%).

6. Social Media Gets 1 in Every 4 Online Ad Dollars

Total digital video ad spending may have grown at a rapid rate of 33%, but there was a format exceeding even it: social media.

Social ad spend jumped by 36% last year, per the report, reaching $22.2 billion.

In fact, social media represented a fairly remarkable 1 in every 4 dollars (25.2%) spent on internet advertising last year, up from just 8% share 5 years earlier.

7. Digital Audio Spend Blossoming

Digital video (+33%) and social media (+36%) are growth drivers in the online ad market by virtue of their size. And while digital audio may not yet have the same influence in the market, it’s actually growing even faster…

Digital audio advertising revenue last year increased by 39% to $1.6 billion, but still represents just a fractional 1.8% of full-year revenues.

Audio continues to be a mobile-heavy format: 77% of digital audio spend occurred on mobile devices.

8. Performance-Based Ad Model Popularity Eases

Most internet ad dollars are transacted using performance-based pricing, but this model is declining from its peak.

Last year performance-based pricing comprised 62% of internet ad revenues, continuing a multi-year decline from a high of 66% in 2014.

CPM pricing remained relatively stable at 34% of spending, with hybrid pricing instead making up the decline. Last year almost 4% of internet ad spending was made using a hybrid pricing model, up from just 1% reported in 2016.

9. The Online Ad Market is Still Densely Concentrated

The long tail of ad sellers continue to battle for a small piece of the online advertising pie, according to the report. During the fourth quarter of 2017, the top 10 ad sellers combined for fully 74% of the market’s total revenues, remaining on the high end of the 67-75% range seen over the past decade. The top 25 ad sellers, meanwhile, combined for 82% of the market, leaving all others to fight over just 18% share of online ad dollars.

There is a caveat to the market domination, though: the IAB points out that of the top 10 companies last year, just 3 were a top 10 company a decade ago.

10. The Second Half of the Year is Where the Money Is

The fourth quarter is typically the largest quarter in terms of online ad spending: in fact it has been ever year since the IAB and PwC began tracking online ad revenues in 2003.

The third quarter is also typically a bigger quarter than either of the preceding two, such that the second half of the year always occupies the biggest share of the year-long revenues.

For 2017, second-half revenues represented 54.4% of full-year revenues, down slightly from 54.8% in 2016, but above the 53.6% average over the past decade.

The full report is available to view here [pdf].


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