Spring 2013

Some of you may remember this chart from late 2010, early 2011. It is a thumbnail analysis of Google and its impact on the world of advertising. The major talking points being a. how the growth in Google's market capitalisation was destined to be bigger than the Global Advertising sector by the end of the decade and b. how the rest of the Internet's ARPU's appeared to have flat lined since the Google IPO.

Put simply the Internet growth story was in reality the Google growth story. End of story.

Some three years on it is perhaps time to revisit this chart to see what's changed and how accurate the historical trends have proven to be. Is it true, when it comes to market data, the more you look back the more you can see into the future?

What I have done here is superimposed the latest data over the original chart. As you can see the growth in Google's Market Cap has reverted back to its historical norm. Or, more accurately the trend line prior to the GFC. Google's revenues are slightly higher. But so are the Internet as a whole. So the question needs to be asked: Does the flat-line theory need to be reviewed. Finally the total pie available to all players is pretty much as forecast. For Google and the rest of the Internet to be winning there must be losers. Which of course provides us with the opportunity to once again explore why the digital disruption of paper is not, at least so far, a zero sum game.

We'll begin the journey by providing more detail to the chart. Here is the year on year change in the Global Ad Spend vs. Google's Market Cap and Revenues.

The first thing we notice is that Google's market cap is increasing faster than its revenues but more importantly so is the growth in the global advertising market. So the next question is of course is Google the fastest growing sector in advertising today?

The answer to that is of course no. If map the growth since 2000, for all the tech press apocalyptic pronouncements over the death of TV, we discover that TV is the market growth leader. In other words for advertisers aggregation still matters. No matter what the size of the screen... or should that be the "crowd"? Funny how the future of the industry mirrors the past, it is just the words we use to describe the phenomenon, the language we use to illustrate the way things are, changes. But alas I digress.

The other major trend of course is the decline of print (e.g. Newspapers, Magazines and Directories) So much so that the Internet (inclusive of Google) is now a bigger advertising market than print.

What is interesting about the digital disruption of course is, as I have demonstrated before, is the transition from Paper to ePaper is not a zero sum game. To illustrate this I have remapped the growth figures for the combined Print & ePrint markets sans Google and Social Media advertising revenues. Once again we find the growth in Internet revenues has failed to offset the decline in Print revenues. Essentially, unlike TV, Google and to a lesser extent Social Media, there has been no growth in the "business of the written word and/or illustrations" over the past 13 years. Advertising Revenues for the written word have flat-lined. Even though the Global Advertising Market has grown by US$150 Billion during that time.

Which leads us to one last chart. Which in the context of Google and the growth in Internet Advertising is perhaps the most critical. And that is the amazing growth story that is Online Advertising is merely a function of the growth in the number of Internet Subscribers. More importantly the fundamental premise of the economic advantages of network effect is found to be flawed (accept of course in the context of Google's aggregation model, seemingly if you scrape the network and put it in a box it is a licence to print money). For the rest of the web the reality is more subscribers does not equate into more value. Indeed the industry is struggling to extract the same value per customer (or should that be subscriber or user?) that it did at the time of the dot com crash.

This then is the source of the reason why the transition to digital isn't a zero sum equation. As we discovered back in 2010 the long term growth in ARPU has flat lined since online advertising revenues collapsed which in turn provided the catalyst for the Dot Com Crash. This also suggests when subscriber growth peaks so will the growth in online advertising revenues. Assuming of course history continues to be a predictive indicator of future online trends.

We'll finish the excursion off with one last chart. Here we have mapped the average revenue generated per user each day for the leading web properties against the most popular prime time TV show in America today. Needless to say the winner is...

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