If you thought the online advertising
industry was a big business, you'd be mistaken if you compared it to the
offline advertising industry. Combined, these industries rake in $800
billion a year worldwide, yet online advertising only makes up less than
$100 billion of the total. According to Google Inc (NASDAQ:GOOG)
Chief Business Officer Nikesh Arora, offline advertisers will become
increasingly more comfortable with online advertising, resulting in
hundreds of billions of dollars of ad money shifting online. Five years
from now, Arora believes there's a "reasonable probability" that over
50% of total advertising spending goes online. To say that Google Inc
(NASDAQ:GOOG) is in great position to benefit would be an understatement.
A big catalyst
In order to convince the marketing world that online
advertising will one day make up the lion's share of advertising
budgets, something powerful needs to come along for advertisers to take
notice. Arora believes that something is Internet-connected televisions,
or smart TVs, an area in which Google Inc (NASDAQ:GOOG)
has not been wildly successful to date. However, he argues that in the
coming years, smart TVs will go from "nice-to-have" to "must-have" in
the minds of consumers, forcing marketers to allocate more ad dollars
online.
Likely frontrunner
YouTube is shaping up to be a huge winner here as Google Inc (NASDAQ:GOOG)
continues to transform the site into becoming more desirable for users
and advertisers alike. Through the use of channels, Google is hoping it
will improve the experience by connecting users directly with content,
aligning more closely with the traditional TV experience. YouTube
channels should be thought of as Google Inc (NASDAQ:GOOG)'s
response to a DVR, but instead of recording content of interest, users
subscribe to content. Both approaches accomplish the same exact thing,
which is to bring relevant content directly to the user so they don't
have to actively seek it out.
Not only are YouTube channels more
convenient for users to connect with relevant content, the value
preposition for Google is tremendous. According to YouTube head Salar
Kamangar, packaging a video within a niche-specific channel has the
potential to bring 10 times more in advertising spending per 1,000 users
than if it were stand-alone. The justification here is that marketers
have better odds of targeting their intended audience.
The third wave
The Internet is a compelling replacement to the traditional
broadcast television model because it invites the possibility of a
two-way interactive user experience. Not to mention the Internet
successfully caters to niche interests on a truly global scale at a
substantially lower cost than the traditional broadcast model. In the
future, Kamangar envisions a world where you will be able to watch a
live sporting event with people you know a la Google Hangouts, while
being able to choose the camera perspective of your liking. As we
approach the third wave of media where the Internet becomes the medium,
YouTube is setting itself up to become the platform. Over the past few
years, Google has handed out over $100 million dollars to create new
channels, in hopes not only to drive increased advertising spending for
"professional" content, but for users to increase their stickiness to
the platform.
That other platform
Granted, Facebook Inc (NASDAQ:FB)
is still in the early stages of monetizing its platform, but in the
coming years, I fully expect marketers to better understand the value
the Facebook platform offers. Facebook has already determined that clicks are a worthless measurement
for gauging advertising effectiveness on its platform, which why it's
in the process of developing alternative measurements. As long as
Facebook can successfully prove that its ads are working and marketers
can embrace new metrics, the company has a lot of untapped growth
potential ahead of it. Facebook is practically the gold standard when it
comes to providing an interactive experience, which could ultimately be
leveraged with marketers. In terms of Facebook gunning for YouTube, CEO
Mark Zuckerberg said the company wants to be a distribution platform
for video content and there's definitely an opportunity to monetize
Facebook-hosted videos, which sounds to me like Facebook will be putting
more of an emphasis on video in the future.
It's a win-win
Technology will continue to play a deeper role in how the world
consumes media. As more content continues to be consumed online,
advertising dollars are likely to follow suit. According to Arora, the
tipping point will be when the majority of televisions become connected
to the Internet, inviting the potential for targeted advertising. Arora
reckons that if a user just purchased a car, they wouldn't want to see
an advertisement for a new car. Eliminating this waste creates more
value for marketers while simultaneously improving the user experience.
When the Internet and television finally do converge in the coming
years, platforms like Facebook and YouTube are likely to benefit as they
continue to drive new levels of interaction and branding.
Ultimately, if Arora is correct, and
five years from now online advertising sees a $300 billion increase in
spending from today, investors in the right positions stand to make some
exceptional returns.
The article Online Advertising Could Reach $400 Billion in 5 Years originally appeared on Fool.com and is written by Steve Heller.
Fool contributor Steve Heller owns shares of Google. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google.
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Source: Insidermonkey