According to GroupM’s latest report, recent data from the US and Europe show that digital ad revenues keep growing for the largest media owners. They grew by around 40% worldwide and by more than 30% in each of the US and Europe during the first three months of 2021.
US and European data show diverging trends
GroupM’s report analyzes advertising trends in both the US and Europe:
In the US we saw year-over-year nominal GDP growth of approximate 0.4% in real (inflation-adjusted) terms and 2.3% in nominal terms. Meanwhile, in Europe first quarter GDP declined in real terms by around 0.6%, although it would have slightly in nominal terms.Source: Global Marketing Monitor: Weekly Market Trends (May 01, 2021), GroupM
However, the company explains that they also saw growth in advertising in quarterly earnings results, specifically with the digital media platforms. Google, Facebook, Amazon, Twitter, Snap and Pinterest collectively saw a global increase in advertising revenues on an annual basis by 16% in 1Q20 and 22% in 4Q20.
Digital advertising is growing faster in Europe
Despite the economic conditions, digital advertising is growing faster in Europe than in the US. GroupM explains that the relationship between advertising and economic measures sometimes can be more coincidental than causal.
But how does that work? GroupM report lists a series of factors that affect advertising budgets:
- Some businesses have a fixed budget. Because of the many variables connecting advertising and sales or the lack of resources, budgets barely change.
- Large companies usually allocate advertising budgets with references to peer averages.
- Businesses that see results from advertising will keep investing.
Other aspects that affect ad revenues
- Avoidance of loss: New competitors who increase spending and threaten to take a company’s market share can push others to increase their budgets too. In that situation advertising is key to sustaining market share.
- Creative destruction: The pandemic has destroyed many businesses, but also led to the creation of many more. The change is so significant that, according to GroupM, “years from now we might look back on this era as a mass genesis event of new business creation”. The concept of creative destruction is well-known in Economics and it can be defined as follows:
“Process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”Joseph Schumpeter
- Other economic factors beyond business growth may affect advertising growth. Changes in advertising growth may depend on organizational or structural economic changes.
What factors affect ad revenues?
The introduction of competitors can make companies that are already established increase their budgets. Also, creative destruction can be another factor that can impact ad revenue.
Why does ad revenue keep growing?
The positive results in advertising have forced the same companies and their competitors to keep investing in advertising.