Venture Bytes #14 – Digital Ads – Time to Follow the Growing Crowds

Posted August 17, 2015

Digital Ads – Time to Follow the Growing Crowds

Digital advertising spending in the emerging markets lags the developed markets. Twitter, for instance, gets 36% of its total revenues from international markets when 77% of its user base is international. Facebook gets 51% of revenues from the international markets when a whopping 85% of its monthly active users are outside the United States and Canada. What gives?

Emerging markets represent the next major market opportunity, this is undeniable. That said, monetization rates are low in the emerging markets. Facebook, for instance, earns $0.15 per user per quarter in India versus $7 to $8 in the U.S. Ad-based platforms need to improve their monetization rates in the emerging markets to drive future growth.

Growing smartphone users were added, 400 million of whom came from just India and China. That same nyear, all the BRIC countries became the most dominant smartphone owners in the world. Despite the robust user growth in Asia, Eastern Europe, and Latin America, digital ad spending in 2014, according to eMarketer, was $50 billion in the these emerging markets compared to $86 billion in North America and Western Europe.

China and India are most promising in terms of raw numbers. A 2013 study by International Advertising Bureau (IAB) demonstrated why China is an apt market for mobile ads. Using a sample of over four thousand people, IAB discovered that Chinese smartphone users are more likely to use smartphones for browsing than U.S. smartphone users (32% Chinese users vs. 21% U.S. users). They may even spend more time on device than their counterparts in the U.S. China’s growing dependence on smartphones and a shift to what IAB refers to as “mobile-only” market rather than U.S.’s “multiscreen market” presents a compelling opportunity for ad monetization.

India’s population using smartphones to access the web climbed from 0.4% in 2012 to 4.4% in 2015. Approximately 120 million Facebook users in India now access the social media network through their mobile phones. Moreover, India reportedly added over 200 million new smartphone users in 2014 and ranks third in the number of Internet users by country. This opens a tremendous market for mobile ad monetization. Yet, according to eMarketer, only 1% of total ad spending worldwide will go towards mobile ad spending in one of the fastest growing countries. In light of the projected digital ad spending of $35 billion in Western Europe—where cumulative growth rate is decelerating—the $970 million spending projected for India is insignificant.

To capitalize on the emerging markets, companies need to account for the structural limitations, particularly low broadband penetration and speeds. Facebook, for one, has begun work in that direction. Earlier this year, the company announced its Creative Accelerator program that will track user’s Internet speeds. The insights from this program will help in more effectively targeting advertisements, i.e, banner or video ads for specific users. Facebook’s Internet.org and “click to missed calls” initiatives have also shown early signs of success, but need additional support before full adoption. For instance, popular advertising brands such as Garnier Men and L’Oreal SA reportedly saw their online sales double in India through the “click to missed call.” With these initiatives and a user base of 132 million in India, second only to that in the U.S., Facebook is doing the right things.

Apart from the major brands, the growing small and medium enterprises in emerging markets will assist in driving the next leg up in ad revenues. Digital ad platforms need to proactively position themselves to follow the growing crowds.

Also featured in this edition is our news section containing articles from Fortune, Business Insider, and Yahoo Finance.