U.S. digital ad spending will increase nearly 50% in the next five years thanks to a surge in mobile spending, according to research firm eMarketer.
EMarketer forecasts U.S. digital ad spending will grow 14.9% to $42.3 billion this year, a revision from its earlier forecast of $41.9 billion. Through 2017, digital ad spending is expected to grow at a compound annual growth rate (CAGR) of 10.7% to $61.4 billion. EMarketer revised its 2013 estimate due to an uptick in its mobile ad spending forecast, from $7.7 billion to $8.5 billion.
The healthy growth in mobile advertising will be fueled by a right-sizing in ad spend. As analyst Mary Meeker mentioned in her “2013 Internet Trends” report, mobile advertising spending lags behind the rate at which time is spent on mobile platforms. For example, in 2011, the Internet accounted for 26% of media consumption and 22% of ad spending. In contrast, mobile accounted for 12% of consumption but just 3% of spending. That discrepancy’s worth? About $20 billion.
At the start of 2013, mobile advertising had its share of doubters. There was great uncertainty about the ability of Facebook and Pandora to make the transition from desktop to mobile devices. Between November and July, Facebook shares traded within a narrow band, from $24 to $28. After its second-quarter mobile advertising revenue grew to $656 million, or 41% of total ad revenue, shares traded in the $34-$39 range. Meanwhile, the almost linear appreciation in Pandora’s share price, from $9.18 at the start of the year to $21.71 on Aug. 22, reflects a marked change in the belief that Pandora can successfully navigate the mobile transition.
The growth in mobile ad spending is driven primarily by just two companies: Google and Facebook. An earlier eMarketer forecast had Google and Facebook generating $8.9 billion and $2 billion in global mobile advertising revenue, respectively.
Third-place Pandora was predicted to earn $400 million of mobile revenue this year — virtually all of it from the United States. EMarketer’s forecast might be too low. Pandora’s mobile revenue was $202.7 million in the half-year ended July 31. Given its current growth rate, Pandora will generate even more mobile revenue in the second half.
Search (read: Google) is expected to maintain its dominance of mobile ad revenue. EMarketer forecasts search to increase from $4.3 billion, or 51% of total mobile advertising, to $15.2 billion, or 49% of the total, in 2017. Its implied CAGR is 46.8%.
Display — for which eMarketer includes banners, video, rich media (typically defined as an ad with high interactivity) and sponsorships — will grow at a CAGR of 50.7% from $3.8 billion this year to $14.5 billion in 2017. Not mentioned was audio, another significant source of revenue for Pandora and other Internet radio services.