Digital media consumption is continuing its meteoric rise, driven by users seeking connection and entertainment options in a pandemic-altered world. It therefore follows that advertising revenue is likewise increasing in the digital sector—yet the amount spent last year still exceeded most expectations. According to the recently released “IAB Internet Advertising Revenue Report: Full Year 2021” conducted by PricewaterhouseCoopers (PwC), digital ad spending grew over 35 percent in 2021, marking the sharpest incline since 2006. “We fully expected 2021 to be an exceptional year for digital ad growth, but even we were surprised at the degree of acceleration,” said Libby Morgan, SVP at IAB. “Not only was every single digital channel up, but some were up more than 50% year-on-year. This year’s increase is three times what it was last year.” Here’s what else you need to know.
Examining the Why
It’s no surprise that ad spending tanked during the early days of the pandemic, so a rebound was somewhat inevitable last year as marketers began making up for lost time. But this spike is also consistent with data from another recently commissioned IAB study by Harvard Business School, which shows that the Internet economy grew seven times faster than the US economy in the last four years. What’s more, Internet revenue now comprises a staggering 12 percent of total American gross domestic product (GDP). “What’s underneath these numbers is a very clear narrative,” said David Cohen, CEO at IAB. “We are witnessing the total and complete democratization of access afforded by ad-supported digital channels. Increased consumer usage coupled with extraordinary growth of small and mid-sized businesses during the pandemic has fueled growth across all digital—but especially digital audio and video.”
Additional factors responsible for the digital ad spend uptick include the burgeoning economy that was jumpstarted in part by several government stimulus packages. In fact, Census Bureau data shows that last year saw the greatest business growth in history, as a record 5.4 million new businesses were formed. Many of them called on ad-supported Internet functions to promote themselves, attract consumers and provide products or services. Holiday spending also kicked into high gear during last year’s fourth quarter, enjoying more than 20 percent year-over-year growth for a total of $55 billion.
Highest Growth Segments
Though digital grew across the board, some sectors nevertheless fared better than others. Digital video jumped by 50.8 percent year-over-year to $39.5 billion, most of it thanks to streaming platforms. Social media went up 39.3 percent year-over-year to $57.7 billion, with sites like TikTok, Snapchat, Twitter and Instagram grabbing consumers’ attention. Audio sites, including those for podcasts, became an unexpected hit and recorded the highest growth level at nearly 58 percent year-over-year with $4.9 billion in ad spending. And though the IAB wouldn’t name specific companies, it did reveal that 10 digital publishers and platforms, collectively, were responsible for 78.6 percent of total digital ad revenue, an increase from 78 percent in 2020. Last year, Insider Intelligence offered a glimpse into who some top players might be by predicting that media giants such as Amazon, Google and Facebook would claim 64 percent of 2021 digital ad budgets. Mobile ad revenue also did well, expanding by 37.4 percent for a total of $135 billion thanks to mobile video, gaming and e-commerce sites. Search revenue grew 32.8 percent last year—less substantially less than other sectors. Still, the digital ad spend outcome is overwhelmingly bright.
Looking ahead, the IAB and PwC remain optimistic regarding continued growth. Investments in the realms of retail media networks (that use retailer data to help advertisers reach consumers), gaming, digital audio, augmented and virtual reality platforms and the ever-expanding metaverse are expected to keep increases steady. Of course, much depends on the overall strength of our economy. “Because of these dynamics, if the number of consumer dollars being spent slows down or declines…we would expect digital ad dollar growth to also be impacted,” wrote analysts in the report. The war in Ukraine combined with high inflation levels plus continued supply-chain problems could potentially lead to an overall industry cool down—yet experts remain hopeful. For our part, we’ll keep eyes peeled on all developments to keep you informed about whatever happens next.