Classifying search ad revenue
Classified advertising has changed significantly over the last 30 years - not least in terms of adspend, writes James McDonald.
UK classified advertising expenditure rose 7.5% year-on-year to a record-high £1.5bn in Q1 2015, boosted by an estimated 9.7% rise in internet search, according to the latest data from the Advertising Association/Warc Expenditure Report, released this week.
Classified adspend is expected to amount to approximately £6.5bn in 2016, accounting for just under a third of all UK advertising spend if it comes to pass. This would be the largest share recorded for classified since we began monitoring expenditure in 1982.
Historically, the classified sector has comprised of two core components. First is the classic ad generally posted among news and magazine brands, alerting the reader to anything from plumbing services to pre-owned motors.
The second core component is recruitment, alerting the reader to job vacancies in the plumbing and motor repair trades.
But classified as we knew it 30 years ago has changed significantly, not least in terms of adspend. Looking only at these two core components, expenditure on classified advertising amounted to £1.9bn in 2014, 55.1% of which was spent online. This is down from a peak of £3.4bn a decade earlier (when only 4.7% was spent online, the remainder print).
The majority of the depreciation in core classified adspend came in 2009, during the aftershock of the global financial crisis. Just over a quarter of the market's value - some £800m - was lost in a single year. Recruitment shouldered the bulk of this blow as adspend fell by 43%, from £1.2bn in 2008 to £698m in 2009.
Core classified adspend had fallen every year since, until 2014, when an up-tick in both components contributed to an overall annual rise of 5.6%. Further, we forecast growth of 2.5% this year and 1.3% next year, when core classified ad receipts should amount to just under £2bn.
Eagle-eyed readers will notice this leaves a shortfall of £4.5bn in our expectations for the total classified market in 2016. For the purposes of the UK Expenditure Report we also group search within classified, although this is not always the case within the research community.
Search adspend, as defined by the Internet Advertising Bureau and referred to herein, relates to "fees advertisers pay internet companies to list and/or link their company site or domain name to a specific search word or phrase."
A variety of sub markets fall under the search umbrella, including paid listings, contextual search, paid inclusion and site optimisation.
Combined, search forms the greater share of internet ad revenue, comprising just over 52% of all online adspend in 2014, compared to 33% for display and 15% for other classified (including recruitment).
Further, it has been the largest contributor to the UK's online ad market for the last 12 years.
Search grew 8.7% in 2014, culminating in spend of £3.8bn. Within this, mobile is now driving much of the overall growth - its share near doubled over the last two years, and by the end of 2016 we expect mobile to account for more than a third of all search advertising spend. This is up from a share of 5.1% just five years earlier.
It's reasonable to conclude that the sector is in rude health. We forecast approximately £4.6bn will be spent on search advertising next year, an annual rise of 10.1% and a record-high. Mobile is expected to supply around £1.6bn to this total.
While this is undoubtedly good news for some, it will actually result in search's share of internet adspend falling, down by approximately 0.6pp from 2015, 1.9pp from 2014, and 8.7pp from its peak in 2009. You can find out why tomorrow.
James McDonald is a research analyst at Warc.
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