Britain as the world's hottest online advertising market?

The Economist last week published a surprising article suggesting that the UK has surpassed the US and other markets in the growth and maturity of its Internet advertising market.  Statistics cited include:

• UK residential broadband penetration of 47% (vs 44% in the US)
• The average Briton spends 23 hours / week online, vs 14 hours / week for the average American (can this be true???)
• Internet accounts for 14% of advertising spend in the UK, vs 5% worldwide (13% in the US)
• Online advertising growth in the first half of 2006 was 40% in the UK (37% in the US)

I believe the growth rates because we are seeing it clearly in online advertising related companies, including ones we've invested in, like Adviva.  But an interesting result of this hypergrowth is that both traditional advertising agencies and Internet firms like Google are increasingly using the UK as a test-bed for new twists on the online advertising phenomenon.

So, for example, Google struck a deal with BSkyB which will eventually try to bring Internet and television advertising programmes together.  The key insight here is that with Tivo-like set-top boxes, "stored television" is looking increasingly like the Web.  Hence, Google's ad targeting technology can be used to deliver specific ads to consumers from their TV hard drives.

Meanwhile, a serious scramble is on to copy the hugely profitable online advertising model on the mobile Internet, witness the recent alliance between Yahoo! UK and Vodafone, and the re-emergence of start-ups we had long given up for dead, like Flytxt, Enpocket and AvantGo.  One of our portfolio companies long active in the mobile content delivery market, Volantis Systems, is being asked with increasing frequency to help content owners (such as CBS TV) and operators figure out how to deliver advertising to mobile phones.

These trends have not gone unnoticed among European venture capitalists, as Nic Brisbourne pointed out recently, citing funding rounds for companies like YOC, ScreenTonic and Txt4.  I don't believe that these (mostly small) investments in Europe qualify as an overfunding of the category.  Most of the targets seem to be mobile marketing agencies reinventing themselves as mobile advertising companies.  I would have thought that mobile content delivery platform providers, with existing operator relationships, are better placed to capture a chunk of the mobile advertising dollars as the ads get delivered over their systems. 

Similarly, some equivalent of online advertising networks ought to be relevant in the mobile world as well, as advertisers seek to target particular groups of consumers.  Will the existing ad network guys, like Ad.com, ValueClick, Burst!Media, be relevant in the mobile ad world?

Om Malik has initiated cautious coverage of the mobile advertising topic on his blog here.  I suspect he does not quite agree with Google CEO Eric Schmidt that mobile advertising will be so profitable that cellphones should become free.  It's a great, self-serving idea (more free platforms on which to deliver Google ads), but it might take a while for the operators, the content owners and Google to work out how to divvy up that pie.  Now THAT will be a protracted negotiation...

Comments

[Nic Brisbourne]

Good post Max. The UK internet advertising scene is more advanced than anywhere else now which is good news for UK plc and should spell opportunity for you and me!

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This is the nice information. I also want to suggest one online advertising network to you - Hooqy.com.

It pays 10% of referred advertisers' expenditure and 5% of referred publishers' earnings. Publishers have full default campaign management to manage their unsold space. Monthly payments by check or Paypal with $50 payout.

http://publisher.hooqy.com/publishers_account.php?ref=3

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