When I first joined the Online Advertising industry, my thesis was that online advertising spend as a function of total ad spend was a fraction of the time that people spent online, meaning that dramatic growth in online advertising was a virtual necessity. When I first got involved in the industry four years ago, what I read was that people spent 17% of their time online but only 5% of US ad spend was online. So 5% has to grow to 17%, right?
Morgan Stanley just published their latest data dump, confirming my theories. In the first chart, we see that people spend 25% of their time online now but US ad spend has grown to only 8%. This implies that unless online advertising does not work at all, now is a great time to arbitrage online advertising buying. It certainly seems like there is no shortage of opportunity to innovate on advertising online, any challenges with respect to the effectiveness of online advertising should be addressed as dollars flow into the market.
What demonstrates the under-investment in solving the online advertising dilemma is the extremely low degree of spend by the top 20 US advertisers. P&G, one of the leaders in advertising understanding, is not even really dipping their toes in the water. CPGs have really not even followed their consumers online.
This chart is strange given that they said a few slides earlier that 8% of US ad spend was online, but it certainly demonstrates the continued growth of online relative to other advertising forms. I think it is safe to say that we have many more years of this ahead of us. The advertising market would have to shrink pretty substantially for this market to not grow in absolute terms at a pretty fast clip.