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AD REVENUE
THE PATH TO $100 BILLION IN ANNUAL
REVENUE BY 2021
August 2016
Flickr BI
/ Zak Cannon Copyright 2016, Business Insider, Inc. All rights reserved.
Intelligence 1
KEY POINTS
US digital ad revenue is poised to reach nearly $100 billion by 2021, according
to BI Intelligence estimates. This represents compound annual growth of 8% from
the $68.9 billion expected in 2016. Digital will account for 45% of total ad revenue in
five years, up from a 37% share at year-end 2016, as spending in traditional,
nondigital media formats stalls.
Mobile will become the top destination for digital ad spending as advertisers
continue to attempt to close the "mobile opportunity gap." While time spent on
phones and tablets has been growing rapidly, these platforms see a relatively small
share of ad budgets.
Digital video advertising will grow faster than any other format over the next five
years, primarily due to strong mobile demand. Revenue in this category is forecast
to rise at a CAGR of 22%, from $8.5 billion in 2016 to $23 billion in 2021.
Search ad revenue's growth will be more modest, but it will continue to make up
the largest share of digital advertising revenue. BI Intelligence estimates that
revenue in this category will rise at five-year CAGR of 6% to reach $43.7 billion in
2021. This compares with $32.9 billion in 2016.
Display ad revenue will post the slowest growth over the next five years. It's
projected to reach $26.4 billion in 2021, up from $22.1 billion in 2016. This represents
a five-year CAGR of 4%.
Social advertising in all formats is gaining traction and will be among the key
drivers of digital ad growth in the next five years. Social ad revenue is poised to
climb to $30.8 billion by 2021, up from $15.5 billion this year a five-year CAGR of
15%.
Artificial intelligence, augmented and virtual reality, and sponsored content will
help propel further digital ad growth in the next decade. These technologies are
the keys to the next $100 billion in revenue for the space.
In this report, BI Intelligence forecasts revenue trends over the next five years and explains
key growth drivers for overall digital ad revenue, digital channels (mobile, desktop), digital
formats including display, search, and video and the dominance of social platforms in
digital. We also discuss the current major US ad revenue generators, Google and Facebook,
as well as emerging player Verizon, and what their walled garden strategies mean to the
overall industry. Finally, we discuss what's next for the digital ad industry in terms of new
technologies, formats, and potential ad platforms.
BI Intelligence estimates are based on historical data from the Interactive Advertising Bureau,
PricewaterhouseCoopers, and Magna Global; our ongoing tracking of the traditional and digital
media markets; and knowledge of industry trends.
The US digital ad industry is poised to rake in nearly $100 billion in revenue by 2021, up from
$68.9 billion in 2016, according to BI Intelligence estimates. This represents a five-year
compound annual growth rate (CAGR) of 8%. While digital ads will not eclipse traditional
revenues over the period, they will account for an increasing share of total US ad revenue and
grow at a faster pace.
Ad spending in traditional, nondigital media formats will reach $121 billion by 2021, little
changed from a projected $119.9 billion this year. Because of this stagnation, digital's share of
total ad revenue will reach 45% of the total in 2021, up from a 37% share at year-end 2016.
Brands' increased comfort with allocating budgets to digital formats. The influx in
digital ad revenue is also because advertisers feel more comfortable spending on
digital formats, particularly on digital video. In a recent 2016 survey of almost 400 US
ad agencies and marketers, the IAB found that two-thirds of respondents plan on
increasing spending on digital video in the next year. Comparatively, only one out of
every 10 respondents planned on increasing ad spending on traditional TV during the
same period. Unsurprisingly, digital video is set to be the fastest growing ad format in
the next five years, rising at a CAGR of 22%.
In the following sections, BI Intelligence examines exactly where the most digital ad revenue
will be generated (mobile vs. desktop), what ad formats are performing better than others
(search, display, and video), and how certain channels like social platforms are garnering the
most attention.
Last year, consumers spent 25% of their time accessing media on mobile devices, according
to the latest Internet Trends Report from Mary Meeker at Kleiner Perkins Caufield Byers. US
advertisers, meanwhile, spent only 12% of their total ad budgets on mobile inventory last year.
This gap is narrowing: In 2014, consumers spent 24% of their time on mobile, but advertisers
spent only 8% of their ad dollars there. BI Intelligence expects that this gap will continue to
narrow as ad buyers become more comfortable with allocating larger budgets to mobile
inventory, platforms increase their user analytics and tracking capabilities on mobile, and the
industry addresses concerns over mobile ad fraud.
Based on these growth rates, overall mobile ad revenue is anticipated to eclipse desktop
revenue by 2018 one year earlier than anticipated in our 2015 forecast. The strong growth
of mobile revenue is largely due to robust demand for mobile video ads, which are the fastest-
growing digital format, with a five-year CAGR of 33%. The massive popularity of social
platforms like Snapchat and Instagram has led to an explosion in video viewing on mobile
devices, spurring rapid growth in ad revenue in the medium over the last year.
While mobile is poised to dominate digital ad growth, there are several hurdles that the
industry must address to incite sustained growth:
The threat of mobile ad fraud. While bot traffic on mobile currently lags behind
desktop, most experts agree that as ad budgets continue to shift to mobile, the
fraudsters will follow. Already, mobile ad fraud is starting to impact in-app advertising.
Fraudsters can create apps that run ads in the background of a user's mobile device
and serve ads even if the user believes that they have exited out of the program. A
recent Forensiq study examined 12 million mobile devices that had downloaded
suspicious apps and found that 1% of devices in the US and 2%-3% in Europe and
Asia were running apps infected with ad fraud. These apps came from both Google
Play and Apple's App Store.
Digital video advertising will grow faster than any other format over the next five years, rising
at a CAGR of 22%. BI Intelligence estimates that video ad revenue across mobile and desktop
will exceed $23 billion in 2021, nearly three times larger than the $8.5 billion expected this
year.
The impressive growth of video ad revenue is primarily due to strong mobile demand. Mobile
video revenue is forecast to reach $14.3 billion in 2021, up from $3.5 billion in 2016. This
represents a five-year CAGR of 33%.
As consumers spend more time viewing mobile videos, these ad-supported mobile video
platforms are garnering enormous video audiences:
Snapchat announced in April that it garners over 10 billion video views per day on its
mobile app, up from 2 billion in May 2015.
YouTube has seen time spent on its mobile app nearly double since 2013, comScore
reported. In December, the platform's mobile app averaged roughly 21.5 million hours
of viewing per day.
Facebook reported in January that it attracts 100 million hours of daily video viewing
across its properties. While this figure includes both desktop and mobile viewing, 92%
of Facebook's audience accesses its properties on mobile devices.
Snapchat has massively expanded its video ad platform in the past six months. In
2016 alone, the company has launched new products, like ads between user content,
app-install ads, and shoppable ads; added new ad measurement tools; and opened up
its application program interface (API) to select partners.
Facebook is looking to offer additional monetization opportunities for its video products
to open up more video ad inventory. In addition to now allowing media companies and
brands to run sponsored video ads on its Instant Articles mobile feature, it is exploring
ways to monetize live videos and adding in-stream video ads to its Facebook
Audience Network the company's mobile ad network.
Less than a year after opening up its platform to advertisers, Instagram sees more
video ads than photo ads on its platform. In Q1 2016, 60% of ad impressions on
Instagram were video, double that of the previous quarter, according to a new study by
Brand Networks that tracked 3.8 billion Instagram ad impressions in the last six
months of 2015 and first three months of 2016.
New media-buying technologies will also promote digital video's ad revenue growth in the next
five years. The continued expansion of programmatic video or using automation in the ad-
buying process allows the industry to buy and sell video ads in greater volume. While
analytics and measurement tools are more limited for programmatic mobile video than
programmatic desktop video, as mobile technologies become more sophisticated and as video
platforms evolve, programmatic mobile video will likely reach parity with its desktop
counterpart. Ultimately, this will boost mobile video spending and revenues.
Search ad revenue, also known as paid search, will continue to make up the bulk of total US
ad revenue, but its overall share will slightly decline as video makes up a larger chunk of the
total.
Search ads will account for 44% of total digital revenue by 2021, down from 48% in
2016.
Mobile search ad revenue is responsible for the overall growth of ad revenue during
the period, rising at a five-year CAGR of 13%. Mobile now accounts for over 50% of
Google's search queries.
Machine learning and AI. Google, far and away the leader in search, now powers all of its
search results using RankBrain a machine-learning AI system in its algorithm. This is up
from just 15% of search queries in 2015. While Google keeps under wraps how exactly the
tech helps refine search results, it is understood that it takes users' past searches and post-
search clicks and helps curate search results to best match those specific users rather than
the overall pool of past searchers. Using machine learning and AI in search queries will
improve users' search experience, giving them the more relevant answers to their questions.
Not only will this encourage users to search more, but it will also help advertisers ensure that
they're targeting the audience that they wish to reach. This could lead to more clicks on search
ads and encourage users to spend more of their budgets on the format.
Facebook is also apparently using AI technology in its search results, but does not divulge
how and in what capacity. When Facebook opens up its search tool to advertisers, just as it
confirmed in its Q2 2016 earnings call, AI will have a similar impact as at Google.
Companies that support voice-activated search aren't monetizing the technology through ads.
But this will likely change in the near future. Google has already confirmed that it's looking at
ways to incorporate search ads in Google Now. Others are bound to follow suit, and the
revenue opportunities could be huge. Google already says that 20-25% of its mobile app and
Android devices are voice-activated. And the technology is catching on with more users. About
60% of smartphone owners who have utilized voice assistants for search queries have done
so in the past 12 months, according to a survey of 1,800 US smartphone users from
MindMeld.
AI-infused keyboards. AI-infused keyboards like Google's Gboard and SwiftKey from
Microsoft are third-party mobile keyboards that use AI technology to understand a user's
word selection and help recommend subsequent words or phrases. These keyboards act as
plug-ins to a user's current keyboard and can be enabled across a variety of apps.
These keyboards could offer an untapped opportunity for search ads. Google's GBoard, for
example, allows users to access Google Search right in their native messaging app like
Apple's iMessage or in other compatible mobile apps just by just typing "G." Users can ask
where the nearest bar is and Google will show a list of bars. While Google currently does not
serve ads in this tool, it's not hard to imagine that it could in the near future. Facebook's
expanding search tool which also uses AI could also feasibly use the technology to
serve ads within its own suite of apps like Messenger and Instagram. WhatsApp, however,
operates with end-to-end encryption and is unlikely to adopt such a feature.
Display ad revenue including any revenue from banners, sponsorships, and rich media
will show the smallest level of growth over the next five years. Display ad revenue will reach
$26.4 billion in 2021, up from $22.1 billion in 2016. This represents a five-year CAGR of 4%.
Despite overall display growth, desktop display revenue will fall over the period,
dropping from $10 billion in revenue this year to just $7.3 billion in 2021. This decline
is driven by the migration of ad dollars from desktop to mobile, and the increased
focus on more immersive ad formats like video.
Mobile display ad revenue will rise at a five-year CAGR of 10% during the period.
Although this is the lowest growth rate out of any mobile format, it's driven primarily by
the increase of time spent on mobile and shift of ad dollars into native-style display
ads.
The rise of programmatic buying and selling of native ads will help boost their growth in the
short term. Until recently, native display ads were primarily sold through direct channels to
ensure that the creative and format matched where native ads were being served. Now major
ad networks and exchanges including Google, Yahoo, Facebook, Twitter, and other smaller
ad tech firms can support the buying and selling of native ads through programmatic
channels. With programmatic native ads, advertisers can pull together various images and
copy for a single campaign. In the programmatic process, the correct image and copy can be
automatically determined by the exchange depending on where the impression is eventually
served.
Ad spending into sponsored content will also help replace formats that have lower
engagement rates or don't translate well to mobile, namely traditional banner ads. Sponsored
content also referred to as premium native can come in the form of content produced in
cooperation with a publisher's editorial team or as branded content, which is original content
produced exclusively by the brand and pushed through an ad on a publisher website. Average
click-through rates for sponsored content are nearly 4X higher than average for traditional,
nonnative display ads in the US, according to data from Polar, a firm that helps
publishers power and monetize their native ad programs.
Social platforms like Facebook, Twitter, Snapchat, Instagram, Twitter, LinkedIn, and
Pinterest have historically reaped the majority of their ad revenue from various forms of
display and video ads. Video ads in particular are a bright spot for social. However, Pinterest
is attempting to snatch up a share of search revenues, though it remains a fairly small player.
Facebook is also expected to jump into search ads in the next few years.
Native formats. Most ads that appear on social platforms are native meaning they
blend into surrounding content. Users can also share, comment, like paid posts (ads)
on these platforms allowing the connections of these users to also see the content.
This gives advertisers a larger reach than they initially intended.
Google and Facebook's all-in-one offerings enable their dominance. Both platforms not only
garner enormous audiences, but they also run huge ad networks and offer sophisticated ad
tech solutions. Thus, advertisers can turn to either company for both distribution and
monetization. This walled garden approach where both users and advertisers can access
all their needs within one platform is discouraging for the greater digital media industry. As
Google and Facebook amass larger shares of digital ad revenue, other publishers are left with
a smaller piece of the pie. This has left many trying to find additional ways to monetize their
content, namely through subscriptions.
At the same time, Google and Facebook's position has its benefits. The success that these
companies are having gives greater visibility to the benefits of digital and ultimately are
encouraging advertisers to spend more across the digital landscape. And while Google and
Facebook do currently dominate the ad industry, there are other platforms that could feasibly
chip away at their controlling market share.
Verizon is the most notable of these emerging competitors. The company has spent
nearly $13 billion in the past year on acquiring digital assets most notably acquiring AOL in
June 2013 ($4.4 billion), ad tech firm Millennial Media in September 2015 ($248 million) and
Yahoo in July 2016 ($4.8 billion). While Verizon has not publicly broken out the performance of
its digital business since its acquisition spree, AOL and Yahoo both rank consistently in
comScore's list of top 10 digital media properties by unique visitors. Further, since its
acquisition last year, AOL has invested significantly in building out its programmatic platform,
AOL One. Yahoo's BrightRoll programmatic video ad platform should help strengthen
Verizon's ad tech presence.
Augmented and virtual reality. With the backing of Facebook, Google, and Microsoft,
augmented reality (AR) and virtual reality (VR) will also present a new and immersive way for
brands and marketers to target audiences. AR and VR platforms would not be a dramatic
departure for advertisers. The viral success of Pokemon Go an AR powered mobile app
underscores that the technology can garner enormous audiences that brands will inevitably try
to reach. McDonalds, for example, is paying to be a sponsored location in Japan. VR could
see similar opportunities when the headsets hit the mass market later this year.
While VR and AR ads could be bought like standard ad units and be shown as pre-roll, mid-
roll, or post-roll ads in between content, we expect that sponsored content offers the most
promise with these new technologies. Sponsored events, apps, and movies won't detract from
the experience and offer an engaging (and innovative) way to interact with audiences.
Sponsored everything. The uptick in ad-blocker usage and the increased focus on bettering
the user experience has brought sponsored content to the forefront for media buyers. This can
include content produced in cooperation with a publisher's editorial team, as well as branded
content, which is original content produced exclusively by the brand and pushed through an ad
on a publisher's website. By 2021, sponsored content will drive $12.6 billion in ad revenue in
the US, up from $3.3 billion in 2016, according to BI Intelligence estimates based on historical
IAB data, company releases, and Polar.
The format has gained traction among advertisers over the past year. In Q1 2016, branded
content campaigns from Polar's customers which include publishers like AOL, Washington
Post, Conde Nast, and Gannett grew 366% YoY, according to Polar data shared with BI
Intelligence. Now branded and sponsored campaigns are evolving past just adverts that look
like articles and coming in the form of full-blown partnerships with brands.
Snapchat is also promoting new forms of digital sponsorships, like lenses and geofilters, that
are commanding massive ad rates. Branded filters reportedly cost advertisers close to
$500,000 for weekday campaigns. The cost rises to $750,000 for holidays and weekends,
according to Ad age. As the line between content and ads continues to blur, and in effect
helps better the user experience, we foresee that innovative new forms of digital sponsorships
will drive up revenues.
The rising popularity of digital media with consumers and brands will propel the growth
of this space.
Mobile devices will eclipse PCs as the top destination for digital ad spending as
consumers shift time spent online to phones and tablets.
Digital video advertising growth will exceed all other formats over the next five years,
primarily due to strong mobile demand.
Search ad revenue's gains will be moderate by comparison, but it will still account for
the largest share of digital ad revenue.
Artificial intelligence, augmented and virtual reality, and sponsored content will help
propel further digital ad growth in the next decade.
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