Thursday, February 22, 2007

User Revolution: The New Advertising Ecosystem

The advertising world is going through a revolution, called the "User Revolution" as it is happening primarily with the consumers, who are taking control of content consumption and branding. This trend will likely cause a significant rise in prominence of the Internet as a major content consumption and marketing medium. The Internet has increasingly become a principal medium for community, communication, and entertainment, three areas that have collided together and are impacting each other's growth, generating a new type of activity called ‘communitainment’. The Internet has become a mainstream media outlet that now rivals traditional media for reach and advertising dollars. The proliferation of online and offline media outlets has resulted in shrinking television audiences and an increasingly fragmented media landscape. Search continues to gain ground, driven by the rise of search as the New Portal, the increasing use of search in branding campaigns, and the local search opportunity. Google's wide variety of non-search-related products creates a virtuous cycle of brand affinity that drives incremental search volume. Internet video ads could become a game changer for large brand advertisers, who are used to the 15- or 30-second TV commercial. Portals maintain the highest reach, but the fastest growing category of destinations is 'communitainment' sites such as MySpace and Facebook. Ad networks are experiencing increased demand due to increasing Internet fragmentation, desire for more targeted inventory, increasing usage of networks for branding, and increased site visibility. Agencies are rapidly evolving into more sophisticated, technology-savvy entities that combine best of breed offerings.

We are living through pivotal times in the advertising world, which is marked by the end of one era, the golden age of advertising that began after the end of World War II, and the beginning of a new era. This new era can also be termed a golden age, but not necessarily for the advertiser. It is the golden era for consumers, and it is already impacting advertising far more profoundly than any other development over the last 50 years. These changes are driven by User Revolution. Like many major social trends, the changes will not happen overnight, and the User Revolution, which has just begun, may last several years before the new regime is fully established and the old statues have all been toppled. Five-Year Growth Estimates for Internet Advertising is over 20% CAGR. For the Internet sector, the new era is a welcome change as the Internet's most important characteristics, flexibility and user control, are also the hallmarks of the User Revolution. In fact, the Web has been a major instigator of this user uprising. As such, the Internet will assume a premium position in the new regime of media consumption. Global online ad spending, now around $32 billion (in 2006), will exceed $80 billion by 2011. The uprising by the users is over control, control of the type of content users want, control of the place and time content is delivered, control of the advertisements that the users are willing to take, and control of the brands they want to create. Unlike most revolutions, where the masses revolt because of major hardship and grievances, the User Revolution was largely driven by the proliferation of media options, the emergence of the Internet, and the growing sophistication of consumers. In the new era, search will assume an even more central role; the distinction between traditional and new media will disappear; consumers will use an increasing and large number of Websites, TV channels, and other sources; consumers will design their own content and programming, and companies that enable and encourage this will prosper; social networking sites will continue to grow and potentially become the new portals; users will select most products and services they buy based heavily on reviews and ratings (by other users and experts), changing the impact of traditional ways of advertising; video will be the killer app of the Web, supplementing or taking over most other types of content; simplicity, speed, intuitiveness, and usefulness will be the key attributes of the successful media channels; and multi-tasking and multi-channel use will be the norm.
Companies to watch: Google (and YouTube), Yahoo!, Disney, News Corp., Time Warner, Microsoft, InterActive, Facebook, Craigslist, Brightcove, Yelp, SINA Corp., Baidu, aQuantive, ValueClick, 24/7 Media, Netflix , Wikipedia, MobiTV, Digg, and Hakia.
Thanks Piper Jaffray Research, February 2007.

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