US Online Advertising Industry: $300 Billion and Counting

Harvard, Boston, 26 June 2009. More details of the IAB/ Harvard study, a groundbreaking assessment of the impact of the internet on GDP, have been released. The study looked at 3 methods of valuing the ad-supported digital economy.[br]

Harvard, Boston, 26 June 2009. More details of the IAB/ Harvard study, a groundbreaking assessment of the impact of the internet on GDP, have been released. The study looked at 3 methods of valuing the ad-supported digital economy.[br]

1. Employment value.
This was the first released part of the study. The internet employs 1.2 million people directly in technical and commercial roles. The study estimated that each jobs created around 1.54 support jobs elsewhere in the economy, for a total of 3 million jobs. Their wages are estimated at $300 billion, or 2 per cent of US GDP

2. Transaction value
The internet directly generates about $175 billion, made up of $20 billion of advertising and marketing revenues, $85 billion in online retail transactions and $70 billion in internet service provider fees. There is also a multiplier effect of revenues generated by support business. Using the same employment multiplier of 1.54, that would equate to $44 million in commercial transactions, or 3 per cent of US GDP.

3. Time value
Heard of the ‘attention economy’? It didn’t sound very real, did it?

Well it is real and quantifiable. The study look at the time spent online. There are 190 million active internet users in the US. They average 68 hours online a month – that is 1.29 billion hours online a month, or just under 16 billion hours a year. The wage bill for that time would be at least $680 billion, probably higher when you consider the larger proportion of higher income users online.[br]

Palo Alto, California, USA, 21 June. Internet advertising in the US adds about $300 billion to the economy, amounting to 2.1 percent of the GDP. This is good news during the worst economic recession since the 30s. The Interactive Advertising Bureau (IAB) commissioned the study, which was conducted by Harvard Business School professors John Quelch and John Deighton.

John Deighton, the Harold M. Brierley Professor of Business Administration at Harvard Business School and co-author of the study, commented on the project.

“This is the first time anyone has undertaken a comprehensive analysis of the size and scope of the Internet economy and measurement of its economic and social benefits.

I am convinced the results of this study will prove useful for business leaders, legislators and the educational community.”

In addition to quantifying the size of the online ad industry in the US, the study uncovered numerous qualitative contributions this sector has made, including:

• Ability of entrepreneurs to start small businesses, find customers and grow

 

• Emergence of new business practices, novel consumer behavior, and innovations in commerce and media

 

• Widespread access to unlimited amounts of information

 

• Increased worker and consumer productivity (output per unit of capital or labor)

 

• Environmental benefits due to the reduction of need for petroleum-based fuels and paper

These social benefits, as a whole, contribute greatly to the American quality of life, something that is very difficult to measure and quantify. Indeed, similar trends are being seen worldwide.

In Asia, online advertising is outpacing traditional advertising as well. Internet and mobile advertising, in-game videos and other cutting-edge ad platforms are expected to outperform the rest of the ad industry, according to a PricewaterhouseCoopers report.

The report, Global Entertainment & Media Outlook 2009, forecasts that entertainment and media spending in Asia-Pacific will rise at 7.1 percent per year over that period, while advertising as a whole will continue to suffer.

Marcel Fernz from PricewaterhouseCoopers, commented, “Inside every cloud is a silver lining and in this case, a digital one. Companies who grasp the opportunities which are appearing in this fast changing marketplace and are agile enough to adapt their business models will be able to take full advantage of the potential and new revenue models as they emerge.”

“Though operating in challenging and fast-moving times, this has never been such an exciting time for the industry,” he said.

“The accelerating digitization is why there is no place to hide from new models and dynamics across the industry. The winners will be those players who focus on driving and leading change that delivers real value for consumers.”

Umberto Osman, EconomyWatch.com