Dissertation Help: Drivers and resistors of online advertising

Based on the above analysis, Business Insights now outlines some key drivers and resistors of the online advertising market.

E-commerce penetration – Online advertising is directly correlated to e-commerce penetration, since online sales are driven by online ads;
Online ad spend as a percentage of total spend – As advertisers spend more ad dollars on the medium, its percentage share over other channels will increase over time;
Internet penetration – Greater online usage, as measured by minutes online per internet visitor per month, should drive higher search activity;
Bandwidth – Bandwidth is crucial for accessing information and resources such as ads, applications, etc, whether fixed or wireless;
Costs – In the emerging markets, costs are a critical factor. Unless the hardware and internet subscription costs decline to affordable levels, a larger number of people will not be able to connect digitally.

Unregulated content – While freedom of speech and expression are positive drivers of internet explosion, the medium is fraught with risks. For instance, in the case of social networking sites such as Facebook and Twitter the dangers include exposing young children to indecent/violent content or pedophiles. Additionally, with the soaring popularity of video sharing sites such as YouTube, studios are suing them for intellectual property violation;
Privacy regulation – Privacy is a primary concern for regulators. Several governments are bringing in stringent laws to govern the collection, use, and retention of certain user-level data collected by search engines. If these laws become too restrictive, it may impede the performance of these providers and be detrimental to their top-line performance;
Information, communication, and telecommunication (ICT) remains more expensive in developing countries – In relation to income, ICT is cheaper in developed nations than in developing countries. According to the International Telecommunication Union’s ICT Price Basket: “In 2008, ICT prices corresponded on average to 15% of countries’ average Gross National Income (GNI) per capita,” ranging from 1.6% in developed countries to 20% in developing countries. This is partly due to very high tariffs for fixed broadband internet in some developing countries. In contrast, ICT prices are generally lower in Singapore and the US.

The segments of the online advertising industry

Business Insights forecasts that search advertising will register the highest growth rate among all the segments, growing at a CAGR of 15.6% over 2007–12 to reach $42bn. Display advertising has the second highest share and will also be the second fastest-growing segment, with a CAGR of 9.9%. However, classified is expected to lose share, registering a negative CAGR of 3.4%, to become a mere $5bn business by 2012.
The drivers of online advertising are e-commerce penetration, online ad spending as a percentage of total expenditure, internet penetration, bandwidth, and costs. Resistors include unregulated content and privacy regulation.
During 2004–09, as a percentage of online advertising revenues, the performance pricing model steadily increased its share from 42.2% to 58.1%, while cost per mille (CPM) share marginally declined from 41.3% to 38.3%. Hybrid’s share drastically declined from 17.2% to 4.3% over the same period.
Google dominates the search market space with an overwhelming 67.5% share. Furthermore, it commands a 74.3% market share in global search advertising. However, Microsoft’s Bing could emerge as a threat, resulting in a duopoly, a development that advertisers would welcome as increased competition could lower advertising costs.