Ad-supported web services worth €100bn – McKinsey


20 Sep 2010

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The value of free advertising-supported web services to consumers in Europe and the US is estimated at €100bn this year, according to a new report from McKinsey & Company commissioned by IAB Europe.

In 2009, online advertising in Europe was valued €14.7bn, while the equivalent figure for the US was €16.3bn, according to IAB Europe AdEx.

The association said online advertising largely funds the value consumers receive from free web services. The estimated value of those services will be €100bn in 2010 and this figure is expected to grow by an average of 13pc for the next five years to €190bn.

One of the aims of the report was to “provide a factual basis from which to understand the trade-off between the value of free internet services and the ‘disturbance’ cost to the consumer of advertising interruption and privacy concerns by 2015”.

The research indicates that while 70pc of consumers have concerns about privacy disturbance they attach more value to the free ad-funded web services they use than they would be prepared to pay for protection from privacy disturbance.

The report suggests that for each euro an internet user is willing to spend to limit advertising disturbance, they currently receive €6 worth of value from ad-supported web services.

How many pay for online services

Only 20pc of internet users choose to pay for at least one online service, such as media entertainment. The research suggests that the pay/free mix is already in equilibrium and only a price drop will increase the numbers of those willing to pay.

The study also indicates that if those services that are currently provided for free were to be charged for (at a level that generates the same amount of revenue as ad-supported services), at least 40pc of current users could stop using the internet. Ironically, it is that 40pc of users for whom privacy is hardly important.

“Online advertising is being debated around the globe, yet until today, there has been little robust and independent research into the huge value generated by the free, advertising-supported web services that we all use every day,” said Alain Heureux, president and CEO of IAB Europe.

“McKinsey & Company’s research shows that online advertising plays a strong role in enabling new services and content distribution models, as well as its traditional role in supporting the creative industries.

“The report also shows that today’s consumers are able to make reasoned choices about when to use advertising supported services, and when to pay for them – and that tightening rules further is likely to have negative effects on internet usage in general.  We look forward to a substantive discussion with the European Commission on policies that will help Europe use the potential of online advertising to generate more value – and economic activity – in member states.”

Article courtesy of Businessandleadership.com