Pay-Per-Click (PPC) Advertising in the U.K.

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September 25th, 2007 by Click Consult

William Gibson, the US science fiction novelist, once said: “The future is here. It's just not widely distributed yet.” To see the future of mobile phones, people look to Japan; to see the impact of broadband internet connections, they look to South Korea. And for a glimpse of the future of advertising, the place to look appears to be Britain.

Last year the internet accounted for 14% of companies' total spending on advertising in Britain, compared with about 5% worldwide. Expenditure on internet advertising in America is similar to that in Britain, but Britain's growth rates are a little higher. In the first half of 2006, online advertising increased by 40% in Britain and 37% in America compared with the same period last year. According To Eric Schmidt, CEO of Google, the U.K. is a “test bed” with an online-advertising industry that is “exploding.”

This is partly down to the BBC, a state-controlled broadcaster that has no advertising. As a result, British companies spend less on television advertising than those in countries with large commercial broadcasters, and more on other types, such as internet advertising. In 2006, British television advertising fell by 2.4% – while in 2007 the market has been flat and stagnant. In contrast, the internet is expected to account for 20% of worldwide advertising spending, at the expense of traditional media (i.e. broadcast and cable TV, print, radio and outdoor advertising). However, Britain is predicted to reach this point by 2009, at which point internet advertising will be worth almost as much as television advertising. Britain has, in effect, got a head start over other countries as advertising spending shifts from old to new media.

Another catalyst of the growth of online advertising is Britons' enthusiasm for fast, always-on broadband connections to the internet and for online shopping. In the UK, 47% of households have broadband, compared with 44% in America and 33% in Germany. Consumers with broadband tend to shop online more frequently and spend more money than those with slower dial-up internet connections. In the first six months of 2006, online retail-spending in Britain increased by 40% compared with the same period last year. Moreover, British consumers typically spend 25% of their media-consumption time on the internet. Britons spend an average of 23 hours a week online, compared with 14 hours per week for Americans. Britain is also attractive to advertisers because it is a homogeneous market, so there is no need to tailor advertisements for different parts of the country.

Multinational Corporations have yet to commit more than a tiny fraction of their budgets to online advertising, but that could soon change. Unilever, an Anglo-Dutch consumer-goods giant, Heineken, Europe's largest brewer, and Procter & Gamble, a large consumer-goods company and the biggest advertiser worldwide, recently announced that they will switch a big chunk of their British advertising budgets away from television. Much of it will go online.

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