Commentary

It's A Fast-Growing Market Outside The U.S.

  • by , Featured Contributor, November 8, 2007
I am writing this as I fly to Europe for the Monaco Media Forum, where much of the focus over the next couple of days will be the growth of digital media and marketing around the world. The flight and the prospect of the conference is making me a bit nostalgic, since in the mid- and late-1990s and 2000 I was flying over here all of the time.

Back then, I was running Real Media, one of the predecessors to 24/7 Real Media, and I used to spend much of my time in Europe. Real Media's largest shareholder, Publicis Groupe, was based in Lausanne, Switzerland, and we had partnered with them to build a number of national ad networks in Europe. In fact, more than 50% of Real Media's revenue back then came from Europe.

A lot has changed in the European online ad market since those days. In many ways, the initial impact of the dot-com bubble bursting was worse in Europe than in the U.S. Most of the national online ad markets in Europe had not yet achieved a critical mass of online ad spend and dependable spenders. Virtually all of the ad revenue was generated from either telecommunications companies or stock market-funded dot-coms. When the bottom fell out of the market, there was not yet either a very robust e-commerce industry or a group of non-teleco advertisers to provide any cushion at all in most of the European markets.

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Many of those markets went from fast-growing and promising to almost dead over night. As bad as we think that it was in the U.S. in 2002 and 2003, it was worse in Germany, France and Scandinavia, and probably a bit worse in the UK. No more. No only did these markets rebound, but they are now quite robust. Not only are they growing faster than the U.S., but some market, like the UK, are becoming more mature than the U.S. market and are allocating more of their total ad spend to online than we do here. The IAB UK tells us that online now commands more than 10% of the total ad spend there. And these markets are just getting started.

Why are these markets growing so fast? Certainly, a portion of the steep growth curves can be attributed to the fact that the markets are building off smaller bases than the U.S. But that only explains a small part of it, I think. In Europe, there is stronger government support for national telecommunications monopolies, so those companies have pushed faster in broadband than the U.S. National geographies have helped as well. Except for Germany, most of the ad buying in each national market in Europe is consolidated in one city, whether it is London, Paris, or Madrid. Thus, the expertise and influence of even a few can have a big impact on an entire national market.

Could these grow faster? Yes. I think they can and that they will. These markets have very strong online brand advertising segments, and much of that spend is based a lot on trust and brand, not analytics, with significant amounts of money going to sites associated with offline media companies. It will be interesting to see how this spend evolves as we see more advertiser-side ROI analytics in the markets, much like we've seen in the U.S. over the past two years. Further, these markets are not yet using as much sophisticated targeting as we see in the U.S. Behavioral targeting is still rather new in Europe, though they do have two strong companies in Germany, Wunderloop and Nugg.ad, which are working on changing that. Of course, the EU and various privacy laws are generally more restrictive than U.S. laws, so those efforts are by their nature going a bit slower. Finally, online ad networks in the European markets have typically been very low-end, since some of the brand-focused ad networks went away in 2001. That is changing as well.

If you're in the U.S., why should you care about this? You should care because the percentage of the global online ad market represented by the U.S. is only going to go down. If you want strong, long-term growth, you will need to be global to serve the needs of global advertisers. You will need to participate in the profits in those markets to fund capital investments and to fully amortize the technology investments that this market requires. Finally, if you're not global, you will likely find yourself facing a non-U.S.-born company in your own market; better to see and understand your future competitors sooner rather than later.

How can you learn more about the non-U.S. markets? One way is to go there. Attend one of the many events hosted around the world, from Ad-Tech's to PaidContent.org's events to the OPA Global Summit. There are many others and there is nothing like going in person. In addition, you should read, subscribe and browse to the trade publications of online ad markets outside the U.S. Absorb what is happening. You will learn a lot. I sure am.

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