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Search advertising still strongest in Australian online ad market

Online search advertising in Australia remains the strongest performing main segment of the online advertising industry, at the same that search giant Google and Microsoft’s Bing are investing significant resources in improving mobile search functionality as search query volumes through handheld devices increase rapidly.

The latest statistics on the online advertising market, from Frost & Sullivan, reveal that the market has grown 29 percent this year outperforming online general advertising - online banner, sponsorships, integrated site content, advertorials, EDM / e-newsletters), online directories and online classifieds advertising.

Frost & Sullivan’s Senior Research Manager, Australia & New Zealand ICT Practice, Phil Harpur, says a significant proportion of Australian consumers are now using smartphones to search the internet and access local information, with directions businesses, restaurants or retail stores common queries on mobile devices.

According to Harpur, proven reliability and cost effectiveness of search appeals to advertisers and agencies, “especially in recent challenging economic times in many developed global economies.”

In Australia, as Harpur points out, Google continues to dominate the search advertising market here, with an 86 percent revenue market share in 2011-12, and he says that  search advertising will continue to dominate Google’s revenues for the at least the next five years.

“Although Google's biggest opportunities are coming from new segments of its business, none yet account for a significant proportion of Google's revenue stream,” Harpur says, stressing that the largest threat to Google's core search business is the expanding social network footprint, “especially from Facebook, which offers a substitute to search for consumers, as well as for advertisers, as it is closed off to Google's core search business.”

Frost & Sullivan says that in Australia Yahoo! Search Marketing’s alliance with ninemsn’s Bing saw strong revenue growth during FY2012.

“By leveraging the strength of both players, Yahoo! Search Marketing’s strength in media and sales relationships and Bing’s strength based on Microsoft’s technology expertise, Yahoo! Search Marketing is positioning itself in the market as an alternate provider with strong performance, efficiency and good value for money,” Harpur says.

He also says that AdLux, an Australian owned and run independent search network, has now successfully established itself as a real alternative to Google and Yahoo! Search Marketing/Bing.

On the Australian online directories market, Frost & Sullivan says that structural changes to the market have accelerated over the past year, in a market that Sensis still dominates locally.

According to Harpur, the free online directories model is threatened and the directories market transition “from a print to online environment has opened up competition on various fronts.”

“As boundaries between online search and online directories blur, pressure is intensified by the search market as well as the social media market. The local economic downturn exacerbated structural changes to the online and print market, and accelerated the shift from print to the cheaper and more affordable online market.”

Harpur emphasises, however, that the online directories market is still a viable business model, saying that it is still the most effective way to maintain an up-to-date and comprehensive listing of companies, “though the market size is predicted to shrink over time.”

But, Frost & Sullivan predicts that, in a contracted online directories market, only two or three players will remain, and smaller players with less comprehensive listings will be forced out.

The research and analyst firm, which describes itself as a growth partnership company, says players in the online directories market have already exited the market in the last 12 to 24 months and smaller and nimble players with sufficient resources to provide comprehensive up-to-date listings are more likely to be successful.

“Online directories with higher operating cost structures will find it increasingly difficult to maintain profitability without significant re-alignment of business models,” Harpur says.

Frost & Sullivan also reports that social media models are increasingly used in online directories, and that social media functionality gained more importance after Google’s move to modify the indexing of its search results to give higher weighting to online directories that have a search ratings review section.

Harpur says that handheld devices such as smartphones and mobile tablet devices offer “tremendous opportunity” for the search and online directories market as it is much more convenient and has the benefit of mobility.

Frost & Sullivan’s report forecasts that the online search market will continue to outpace the online directories market over the next five years, growing at a Compound Annual Growth Rate (CAGR) of 18 percent between this year and 2017, whilst the online directories market is expected to shrink with a CAGR of minus two percent.

Meanwhile, the proportion of the total online search and directories market accounted for by search is predicted to increase from 81 percent this year to 92 percent in 2017.

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

 

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