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US Digital Ad Spending to Top $37 Billion in 2012 as Market Consolidates

Google alone to account for 41.3% of total US digital ad revenues in 2012

NEW YORK, NY (September 20, 2012)—eMarketer estimates that marketers will spend $37.31 billion on digital advertising in 2012. Digital ad spending will rise 16.6% this year, and will experience double-digit growth through 2014.

Combined, Google, Yahoo!, Microsoft, Facebook and AOL will take in $23.9 billion in ad revenues, representing nearly two-thirds of total digital ad spending this year.

At $15.41 billion, Google’s ad revenue alone will account for 41.3% of total digital ad revenues in 2012. Google will see slightly slower growth than eMarketer estimated earlier this year, as the company’s ad revenues for the first two quarters of 2012 were a bit lower than expected.

Despite this factor, Google’s growth will reach 20% in 2012 and remain in the double digits through 2016. By 2014, marketers will spend more than $20 billion on Google advertising, while digital ad revenue at Yahoo!, Microsoft and Facebook will each total just over $3 billion.

Overall US Digital Ad Spending

Based on the Interactive Advertising Bureau’s (IAB) data for the first quarter of 2012, and because the digital ad spending market is approaching maturity faster than expected, eMarketer has lowered the projected rate of increase for US digital ad spending slightly from its earlier forecast of 17.7% in 2012. However, eMarketer’s outlook remains optimistic—despite slower percentage gains, big dollar growth will continue.

By looking at the estimates of multiple research firms projecting US digital ad spending, digital advertising is indisputably becoming a bigger part of total media ad spending. Most research firms forecasting US digital ad spending for 2012—including eMarketer—agree revenue will exceed $35 billion this year, though many have varying definitions and methodologies.

US Digital Ad Spending, by Format

Search continues to be the leading digital ad spending format, although its share will begin to drop this year as the shares of rich media, sponsorships and video increase.

Display ad spending, which includes banner ads, video, rich media and sponsorships, will rise from 40.2% of total digital ad spending in 2012 to 45.6% of the total in 2016. Search’s share of total digital ad spending will decrease from 47.1% in 2012 to 44.2% in 2016. Combined, spending on paid search and display advertising will account for more than 87% of all US digital ad spending this year.

This year, display ad spending growth will outpace that of paid search ad spending, driven by digital video advertising and sponsorships. At a 46.5% growth rate, digital video ad spending will continue to post the strongest gains—though it is starting from a much smaller base. Online and mobile video viewing are becoming increasingly popular. According to eMarketer forecasts, more than half of the US population will view video content through desktop or mobile devices in 2012.

Ad Revenues at Major Ad Publishers and Networks

Managerial changes, new company focus and adequate results in the first two quarters of 2012 have led eMarketer to raise the forecast for Yahoo! from a 4.7% decline to 1.7% growth for 2012. Growth will remain relatively flat through 2014. Yahoo! holds the second-largest share of digital ad revenues, at 8.4% of the total. Its share will decline throughout the forecast period as the shares of Facebook and Microsoft increase.

Despite Microsoft’s growing share of digital ad revenue, its Online Services Division, which manages digital advertising (including Bing and MSN), has reported an operating loss for 17 quarters in a row. While Microsoft’s increasing search ad revenue share is an indication of shifts in the overall search advertising market, it is a less accurate depiction of the company’s overall performance in the digital space.

Facebook will experience the fastest growth of digital ad revenue this year, though eMarketer has cut 2012’s forecasted growth in half, to 24.4%, from its earlier estimate. Facebook underperformed eMarketer’s expectations in both Q1 and Q2, and questions have been raised about the effectiveness of some of the site’s ad products—especially its Premium ad offerings—as some high-profile brands have dropped their efforts on the site.

Methodology and Definitions

eMarketer bases its estimates for US digital advertising spending and market share on an analysis of reported revenues from company releases; estimates from other research firms on advertising revenues, pricing, impressions and other factors; usage trends at major ad publishers; eMarketer interviews with executives at ad agencies, brands, online ad publishers and other industry leaders; and figures from the Interactive Advertising Bureau and PricewaterhouseCoopers, its benchmark source for overall digital advertising revenues, for which the last full year measured is 2011.

The figures for individual companies represent net US ad revenues after traffic acquisition costs to partner sites and publishers have been factored out, and include advertising that appears on desktop and laptop computers as well as mobile phones and tablets.

About eMarketer

eMarketer is the authority on digital marketing, media and commerce, offering insights essential to navigating the changing, competitive and complex digital environment. By weighing and analyzing information from different sources, eMarketer provides businesspeople, marketers and advertisers with the most complete view of digital marketing available.
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Clark Fredricksen
Vice President, Communications, eMarketer
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Posted on September 20, 2012.