A SURE FIRE GAME CHANGER
Since the first website banner was created in 1993, the advertising industry has been changing – slowly at first, but now far too quickly for some. Which company is larger between General Electric (once the largest company in the world, producing items from fridges and cars to jet engines) and Google; and between JP Morgan Chase (one of the biggest banks in the world and the largest in the US) and the Alibaba Group? In both cases, you would be wrong to assume the first.
Although General Electric has a whopping $245.9Billion (R2,872.26 billion) market cap, Google stands at $495.39billion (R5,786.45 billion). Alibaba Group is a Chinese company that purely facilitates online transactions. It is 15 years old and has grown to be worth $260.7billion (R3,045.13 billion). The one thing that Google and Alibaba Group have in common is that they are both purely digital companies where their services are only provided online. Bringing this a bit closer to home, Naspers, which owns DSTV, MWeb and many of SA’s largest newspapers and publications, is seen as an e-commerce company.
The reason for this is that Naspers owns a minority stake (46.5%) in Tencent Holdings (a Chinese digital company), which makes up most (+-85%) of the company’s worth.As is evident, digital usage is growing at a rapid rate. Facebook calculated that of its 864 million active users, they spend 20 minutes each day on Facebook alone. Google indicated in October this year that it gets 11.94 billion searches per day!
According to the International Telecommunications Union, in 2005, 51% of people in the developed world used the internet, compared to that of only 8% in the developing world. This changed substantially in 2013 with 77% of the developed world using the internet, compared to that of 31% of the developing world. Looking to Africa, only 16% of the continent is using the Internet – but it is growing, and the growth is coming from mobile users. In South Africa specifically, 81.6% of the Internet users are making use of their mobile phones to access the Internet. This is all good and well, but does it translate into advertising value?
Advertisers think so. In 2013 the digital ad spend in the UK took over as the leading form of advertising. In the USA, digital ad spend also received the largest piece of the pie ($42.8 billion) for the 2013 year. So, what about South Africa? While the ad spend allocated to digital has grown dramatically (35.3% in 2013 alone) we are unfortunately trailing quite a bit behind the rest of the world. Television still gets the largest chunk of the ad spend pie (26.25% of total ad spend, which equates to R30.74billion).
That said, it is forecast that digital ad spend (currently at R25.7billion) will grow at an average rate of 22.7% until 2018. With all of this growth in advertising, a new financial market is forming. Exchanges are being created right around the world, which, instead of bidding for shares, gold or oil, people and brands are now bidding on advertising space. Real-Time Bidding is the process in which automated bidding takes place all within a span of a tenth of a second (all before the website page loads) selling advertising space to the highest willing bidder, and as a result, determining what ad lands up being shown to you.
I have no doubt this will grow terrifyingly quickly in the next few years. What one can take from all of these numbers is the fact that digital advertising is not a bubble or a “fad” (as many would believe), it is emerging at an incredible rate, and it is here to stay.
Ruan Oostuizen CEO and Co-founder, Flume ruan@flume.co.za
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