2017Online Advertising forecast:Market concentration continues

Expecting consistent share gains vs. traditional advertisingThe latest industry estimates from MagnaGlobal have the onlineadvertising market growing 17% in CY16 to $178bn, with the online marketgaining 400bps of market share vs. traditional advertising. For the last fouryears, the online advertising market has gained 300-400bps market shareand we expect this trend to continue. For CY17, we’re expecting the globalmarket to grow 16% (13% prior) to $207bn and for CY18, we’re expecting15% growth (13% prior) to $238bn, with 400bps of share gain in each year.

In our forecast, we use MagnaGlobal as the source for historicals and makeour own projections going forward.

See continued market consolidation towards FB and GOOGLFor CY16, the online advertising market is on track to increase by $26bnand our Facebook and Google estimates imply that that these two vendorscombined will increase their ad revenues by $19bn, representing 75% ofthe market’s growth. From CY12-CY15, Facebook and Google represented~45-60% of the market’s growth, which signals to us that the marketconsolidated towards Facebook and Google. Going forward, we’reexpecting Facebook and Google to continue to represent the vast majorityof the market’s growth. Our estimates imply Facebook and Googlerepresent 77% of the market’s absolute increase in CY17 and 82% in CY18.

Expecting continued strength in mobile search and socialWe’re expecting mobile search to offset declines from desktop searchgoing forward. We estimate the desktop search market will decline 1% inCY17 and shrink another 3% in CY18 while the mobile search market grows36% and 28%, respectively. This results in the global search marketgrowing 16% in CY17 and 15% in CY18 (versus +17% in CY16). We expectthat Facebook can continue to dominate social advertising, with the marketgrowing 33% in CY17 to $34bn and 27% in CY18 to $56bn (vs. 46% in CY16).

See video growing steadily, but not at a tipping pointWe believe that TV budgets will have a more gradual shift to online relativeto the shifts we’ve seen with radio and print adverting given infrastructure andmeasurement challenges. For CY17 and CY18, we’re forecasting the videomarket to grow 25% to $22bn and 23% to $26bn (vs. 27% growth in CY16).