Take a closer look at the US online advertising spend data and you'll soon discover the only market Google has disrupted is online
The reason why the future of digital media isn't about putting advertising on the menu is very simple.
The web's ability to make money out of putting ads on the menu never really recovered from the collapse in ARPU following the dot-com crash.
Here let me show you what I mean.
This graph is the one you'll see in all the venture capital and investment banker presentations. It is the IAB's data set [PDF] that clearly shows online advertising in the US on the rise over the past decade moving past the newspaper industry and ready to take on TV.
What this graph doesn't factor into the equation is the emergence of Google as the dominant online advertising platform. As we have seen before once we split the revenue growth between Google and the rest of the online advertising sector things don't look quite so good for the online advertising sector simply because most of the advertising growth has come from Google.
Take Google out of the equation and we discover that the "booming" online advertising sector in the US may be growing faster than the rapidly fading Print sector but it is clearly struggling to compete with the growth in Cable TV Advertising.
For all the claims of more and more Face Time for online content publishers we are still not seeing the metrics that clearly demonstrate that putting ads on the menu is the future of advertising funded content.
How the "one trick pony" cornered the depressed online advertising market in the mid 2000's.
Now let's take a quick look at Google.
Over the weekend GigaOM asked the question: "Is Google just a one trick pony".
"In other words, if you're going to be a company with just one "trick", it might as well be one that has revolutionized the world of online advertising, stolen billions of dollars in revenue from traditional media entities and pours vast rivers of cash into Google's coffers every month, regular as clockwork." - GigaOM.
Of course GigaOm isn't the first - and probably won't be the last - to ask that question. (e.g. Business Week in 2005, Last year it was TechCrunch and Business Insider) The problem with the answer of course is Google hasn't stolen billions of dollars in revenue from traditional media entities. What it has stolen is the growth revenues from the rest of the web. .
To understand how this has happen we need to take a step back and examine how the growth in US online advertising hasn't kept pace with the growth in US internet subscribers.
We have taken a look at how the explosion in number Web Sites has made the economics of the online advertising industry unsustainable but what about the explosion in the number of Internet subscribers since the dot-com crash. How has that affected the economics of the online advertising industry?
If we mash together Royal Pingdom's internet subscriber stats with the IAB Data [PDF] we soon discover the Ad Spend recovered from the Dot Com crash in 2005 and is now marginally ahead of the subscriber growth. .
Something interesting happens however when we isolate Google out of the ad growth. You can see that Google's growth pretty much tracks the growth in subscriber numbers. This raise the interesting question of will Google continue to grow its revenues in the US once US internet subscriber growth plateaus?
Now let's take a look at the rest of the online advertising industry. Here we discover that the rest of the industry has failed to keep pace with the growth in subscribers.
This trend line can be read two ways. You either read it as further evidence that putting ads on the menu has failed miserably as a sustainable business model or, coupled with Mary Meeker's evidence from last year of the growing gap between time spent online with other media, a substantial growth opportunity moving forward. .
Mashing together Royal Pingdom's internet subscriber stats with the IAB Data [PDF] also allows us to generate a chart on the relative performance of Google's ARPU vs. the rest of the online advertising industry's ARPU since the dot-com crash.
As you can see in the chart below, unlike Google, the ARPU's of the rest of the industry really haven't recovered from the dot-com crash. As an aside, now add to this to the explosion in the number of web sites seeking a share of the online advertising spend and you can see why the advertising funded digital content on the web is structurally flawed.
Plus, if you simply add Google's ARPU to the Rest of the Web and you now discover "Surprise Surprise" that the industry is just about back, if not slightly ahead, of where it was in 2000.
The simple reality is the number of new subscribers that have joined the internet in the US over the past decade has more than doubled. Meanwhile the industry's ARPU has only just clawed its way back to where it was during the height of the dot-com boom.
Take Google out of the equation and you'll soon see that in the US online advertising never really recovered from horrors of the dot-com crash. Why? Probably because Madison Ave. is still waiting to be convinced that advertising (i.e. good old fashion Big Brand Building) actually works on the web.
Here's why eCommerce is a much better business model than simply putting ads on the menu.
OK one last set of charts to close out the discussion. This time we'll mash the US Census data together with Royal Pingdom's internet subscriber stats with the IAB Data [PDF] to illustrate why the business of "Browsing with us but buying from them" has been replaced by the business of "Browse with us, buy from us" at least online.
The first chart illustrates just how much the growth in eCommerce has outperformed not only the growth in online advertising in the US over the past decade but also the growth in the number internet subscribers.
Translate that into ARPU and you can see that even with Google still factored into the equation it is a none contest.
As I have said before if you are not using your online presence to sell something then what are you doing online?
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