Online Ads Entice When Budgets are Tight, Study Says

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In a time of poor economic conditions and shrinking marketing budgets, online advertising is increasingly being preferred over traditional advertising forms in Singapore, according to a Frost & Sullivan study.

The report Singapore Online Advertising Market found out that online advertising is being recognised for its ability to achieve precise targeting, measurable ROI and its cost-effectiveness. As today's youths are being hooked onto the Internet, advertisers and media agencies alike are cashing in on this. This age group have subsequently become one of the primary drivers of online advertising in recent years, said Frost & Sullivan industry analyst Kamlesh Kalwar.

The study found out that the market was worth US$142.1 million in 2007 and forecasts this to reach US$413.5 million by end-2013, growing at a compound annual growth rate (CAGR) of 19.5 per cent from 2008 to 2013. In 2008, Singapore's online advertising industry was estimated to have raked in US$190 million in revenues, representing a year-on-year growth of 33.7 per cent.

Paid search advertising, by far the largest online advertising segment, accounted for 44 per cent, equalling US$62.5 million, of Singapore's online advertising revenues in 2007. This segment is expected to continue growing at a CAGR of 22.1 per cent between 2008 and 2013.

"Companies have not only started to see the value of online campaigns, but also recognise the importance of tracking the campaigns. This is driving the growth of paid search," pointed out Kalwar. As the segment rapidly grows, the number of search engine marketing advertisement networks and agencies has also risen exponentially, leading to more innovative search and targeting options for advertisers, he added.

Other mediums

Display advertising was the second biggest segment accounting for 25 per cent (US$35.5 million) of revenues, with banner ads and e-mail marketing being the two most popular forms of display ads.

Online classifieds accounted for 19 per cent (US$27 million) of the total revenues in 2007. Driven largely by the rapid audience shift, particularly youths, from print to online channels, this segment is forecast to grow at a CAGR of 17.5 per cent from 2008 to 2013. Job classifieds have been the main source of revenue for online classifieds in the past two years. The other key revenue earners are online auctions, real estate and automotive or car sites.

The smallest segment, online directory services, which accounted for the remaining 12 per cent (US$17.1 million) of revenues in 2007, is expected to grow only marginally at a CAGR of 7.6 per cent for 2008 to 2013. These are mainly of a display-only nature and do not seem to generate significant amount of traffic, said Kalwar.

Dark cloud of fraud

Although Singapore's online advertising sector accounted for a paltry 4.8 per cent of the total advertising expenditure in 2007, the outlook for this young industry is promising.

"As users spend increasingly more time online, a growing number of companies are launching commercials online to grab their attention," said Kalwar. By 2013, online advertising is expected to account for more than 9.3 per cent of Singapore's total advertising expenditure.

Fraud, however, is a major challenge for the industry, noted Kalwar. Issues such as advance fee fraud, click fraud, credit card fraud, foreign exchange scam, employment scam, phishing and wire fraud, among many others, affect online businesses.

This has a negative impact on the confidence of buyers and sellers. "It is important for the online industry to make a united effort in curbing online fraud to increase advertiser confidence in the online media," said Kalwar.

This story, "Online Ads Entice When Budgets are Tight, Study Says" was originally published by MIS Asia.

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