Amid growing debate as to whether brands are overspending on digital media, new research by Zenith has found the effectiveness of internet advertising has now caught up with digital ad spend.

Until 2015, brands struggled to make effective use of internet advertising, and their spend was not matched by the resulting ‘brand experience’ (an accurate proxy of market share*).

However, by 2016 internet advertising accounted for 34 per cent of global ad budgets but produced 35 per cent of brand experience. Internet advertising is now therefore working harder than advertising in other media.

For many years, Zenith’s Advertising Expenditure Forecasts reports have consistently reported sizeable increases in the internet share of advertising budgets.

In 2014, advertisers spent 27 per cent of their budgets on internet advertising, which produced only 21 per cent of brand experience.

By 2015 though, brands were using internet advertising more effectively – it accounted for 30 per cent of both budgets and paid brand experience, before tipping over in 2016, when brand experience exceeded budget share.

Zenith expects internet advertising’s share of global ad spend to continue to rise, reaching 40 per cent in 2018 and 44 per cent in 2020. Its value will rise from US$203 billion in 2017 to US$225 billion in 2020, according to the agency’s latest report.

The share of advertising expenditure allocated to internet advertising varies widely across the world, Zenith found.

In the most advanced markets (Sweden and the UK), it will account for more than 60 per cent of total expenditure next year, and it will account for between 50 per cent and 60 per cent in another six (Australia, Canada, China, Denmark, Norway and Taiwan).

In Australia, internet ad spend will capture 52.1 per cent of the market in 2017, ahead of the global average, according to the report.

Zenith forecasts 9.6 per cent growth in internet advertising in Australia in 2018, compared to 3.4 per cent growth for the advertising market as a whole. By 2020, internet will account for 60.3 per cent of total ad spend in Australia.

The rise of the internet has had huge consequences for the other media, which are covered in detail in the executive summary.

Big platforms are capturing digital growth

Zenith’s report found the internet is driving the great majority of global growth in advertising, and will account for 94 per cent of the growth in ad spend between 2017 and 2020.

Most of this will be captured by just five big platforms – Google and Facebook, plus the Chinese platforms Baidu, Alibaba and Tencent.

Between them, these five platforms increased their share of global internet ad spend from 61 per cent to 72 per cent between 2014 and 2016, and captured 83 per cent of the growth in internet ad spend over that time.

Baidu, Alibaba and Tencent accounted for 54 per cent of the growth in internet ad spend in China, while Google and Facebook accounted for 96 per cent of the growth in internet ad spend in the rest of the world.

Between them, Google and Facebook accounted for 76 per cent of internet ad spend outside China in 2016.

Big countries are adding most ad dollars

In dollar terms, most of the growth in global ad spend is coming from a few big markets, the report found.

Zenith forecasts that just two countries – the US and China – will contribute 47 per cent of new ad dollars between 2017 and 2020. The five biggest markets – the US, China, Japan, the UK and Germany – will contribute 57 per cent.

Big cities are driving global ad spend growth

The study found big cities are driving global ad spend by concentrating growth in productivity, innovation and trade.

Zenith has conducted a unique study that attributes ad spend to individual cities by estimating the value of their inhabitants to local, national and international advertisers.

It forecasts that the top 10 cities alone will contribute 12 per cent of all global ad spend growth this year, and that the top 725 will contribute 60 per cent.

“We predict that between 2016 and 2019, ad spend in the 10 biggest-contributing cities will grow by a total of US$7.5 billion, representing 11 per cent of growth over these years,” the report said.

“These 10 cities will be, in descending order: New York (where ad spend will grow by US$1.4 billion), Tokyo, Jakarta, Los Angeles, Shanghai, Houston, Dallas, Beijing, London and Chicago (which will grow by US$0.6 billion).

Advertisers feel the pressure from digital transformation and polarisation of growth

At the end of November, Zenith conducted the third in its series of exclusive surveys about brand growth among key Zenith clients. On a scale from zero to 100 – where zero means everyone expects a decline in 2018, 100 means everyone expects growth, and 50 means the average expectation is for no growth – the average response was 57, down from 67 this time last year.

Food and drink brands have been the least affected, with a score of 66 this year – down just a point from 67 last year. Packaged goods, retail and telecom brands have all fallen to 50, expecting no growth – down from positive scores last year.

Zenith’s global brand president, Vittorio Bonori, said: “We are seeing a battle played out in business, marketing and media between big players and small players.

“Growth is coming from big countries and big cities, and being captured by big platforms. Brands should focus on upstream strategy, data-informed UX planning and downstream automation.”

Zenith Australia CEO Nickie Scriven said: “In Australia, we anticipate 3.4 per cent ad spend growth year on year to 2020. In 2017, the highest growing categories were automotive brands – driven by many new car launches and an increase in luxury car advertising; retail – despite the substantial decline in October; and restaurants.

“Ad spend growth is predominantly being driven by the ever-growing fragmentation of the media landscape, with digital media now accounting for 52 per cent of ad spend in Australia, and forecast to grow by a further 10 per cent in 2018.

“Google and Facebook are the main benefactors of this growth, and this is likely to continue to 2020. Out-of-home continues to buck the trend and post year on year growth, buoyed by the digitisation of panels, inventory growth and investment in tech.”

Jonathan Barnard, head of forecasting and director of global intelligence at Zenith, said: “Internet advertising is the biggest advertising medium in the world and the biggest driver of growth.

“Our unique research shows that brands are starting to use it effectively after struggling to adapt over the last few years.”

* Brand experience is a combination of two factors: reach (how likely consumers are to encounter brand messages at each touchpoint) and influence (how likely each message is to consumer attitudes or behaviour). It covers all touchpoints across paid, owned and earned media, but because we were comparing it to advertising expenditure, here we measured only the brand experience of paid media.