Compared to other types of media, the Internet still appears to lag behind in the United States in terms of amount of revenue generated per user hour. I looked i nto the question and what I found surprised me a little bit.
The average U.S. adult spends about 120.8 hours per month watching television, a staggeringly large amount. By contrast, Internet usage is actually quite modest -- about 30 hours a month per adult or a quarter of TV's time. For the whole of 2008, what you end up with based on comScore's figures is about 65.2 billion user hours of time spent online in the U.S. -- compared to about 333.6 billion hours of TV-watching.
So how much revenue does all this activity generate? What's the value of that user attention? How does TV compare to online? Compare the fees that users pay for access to each: about $78.9 billion for basic and premium cable translates to $0.24 per U.S. adult per hour of television watched. On the other hand, the Internet seems more expensive. When you look at broadband revenues (about $32 billion) and assume another few billion for dialup and the costs of work access you're at least $0.50 or as much as $0.70 per user hour of access. Only about 10 percent of TV households don't have any cable or satellite (according to Nielsen) so it's a bit surprising that Internet access is two to three times as expensive per hour as is television access.
How about advertising? Pulling in revenue numbers from industry sources for 2008 we see about $23.5 billion in online advertising spend compared to almost $67 billion on the TV side. Take those billions of hours of television watching, and that translates into $0.20 per viewer hour of television. On the online side, however, that means that for every hour a U.S. user spends online, marketers spend about $0.36 in advertising revenue to reach that user. So this means that the Internet actually over-indexes in terms of user time vs. advertising revenue. But there is a bit more to this story...
According to the IAB, search spending represents about 45 percent of total online ad revenue, and yet accounts for only about 5 percent of user time. That means that each user hour spent on search engines is worth about $3.24 in ad revenue, and therefore non-search online ad revenue clocks in at just $0.21 per hour. A lot of search spend is incremental, whereas non-search spend is more likely to reflect share shift from other media, and this seems to be borne out by these numbers as well, since this virtually puts non-search online advertising (display, lead generation, classifieds, video) at parity with offline television ad spend.
The (non-search) time Americans spend online is actually monetized per user hour at a rate roughly equivalent to what television is, when you exclude search -- and considering the interactive nature of the Web, this very parity means the online medium is far behind where it should be from an advertising and monetization perspective! Online advertising is not interruptive or targeted enough yet to be much more valuable than the basic stuff we see on TV today. Unlike cable television, the companies that build Websites and create online content are not sharing much in Internet access fees, and thus the Web ecosystem needs better broad-based revenue streams. Those hours you spend on Twitter are not pushing enough money back into the system, yet.
Interesting side-note: Google (Nasdaq: GOOG), Facebook, and YouTube together have grown to consume 14.1 percent of all user minutes spent online in the U.S., according to my analysis of comScore figures. While Google's search traffic is obviously highly valuable, the same cannot be said for the rate at which Facebook or YouTube are yet able to monetize the attention of users on their respective platforms. The impact of the revenue strategies these big players follow will be disproportionally large and important in the overall scheme of U.S. online monetization.
While still more expensive for consumers to access in the U.S., compared to television, the Internet is still a long way from realizing its potential as a commercial communications medium. It's time for us all to get creative and think about how to improve "non-user paid" Internet monetization -- otherwise we risk creating an exciting, global, interactive environment that lacks any good way to pay for itself.
Just out of curiosity, what dev platform suits you most? For some reason, I'm thinking it ends with x. I left that chat before I saw dry erasers headed my way ;o).
I was wondering about how the marketing departments justified online ads (or every ad). If they placed 500K in ads, how can they tell how much money they sold that was because of those ads. Something like what is the bang for their buck.
There is no way the revenue per hour should even approach Television right now. Newspaper maybe, but not television. It doesn't cost a lot to produce web content unless you're paying all the employees six figure salaries. While television programming costs, in some cases, millions per episode and the amount of people employed is enourmous. Some web sites can run with just one person at the controls and hosting via "The Cloud" (or is it virtualization, can't keep them straight) is cheaper than hell. Only newbie SMBs will fall for that $1000 a year hosting charge, and that's not even with a site built! Custom site building costs can still run low five figures (especially when the client keeps changing their mind) for SMBs unless they find an experienced Template user to whip one up for a few hundred to a couple of thousand.
So for investing in a website, unless your super huge like YouTube or Amazon, you don't spend so much money to create content and vendors won't pay for advertising that would even remotely reach TV levels because of it. (and I firmly believe some companies engage in click fraud on ads)
It sounds like you are looking at the end results. To try to make a difference, you really have to look at the contributing factors. You can use your metric as a scorecard, but the factors that get you there are very different.
Actually the very fact that it is a lot of diverse things in each medium makes the revenue per hour comparison quite apt - it's boiling it down and putting it in human terms, in terms of an hour of a consumer's attention.
The fact that once you strip search out, that online time is no more valuable than television time, speaks to how far we have to go as online advertising practitioners (speaking for myself) to improve the quality and impact of what we are doing. Online, there are a lot more messages of lower average impact - on television there are fewer messages of higher impact because of their interruptiveness.
It's by no means apples and oranges - the ultimate measure is the same, the non-renewable resource of time that we all have (and probably don't usually think of in terms of its value)!
Why people are on the Internet, and what people are willing to pay for the advertising are more complicated than looking at cost per hour. Fundamentally, advertising depends on whether you are in a buyer's or seller's market. Internet advertising is more of a buyer's market and has gone through many evolutions. It used to be paid by viewer, then buyer's decided they wanted to pay for clicks. Now, there is pay per sale. In some cases we have Double Verify. With TV rates are more embedded in a system as there is a very limited base. More importantly though, TV does not allow for much user action. There are the ads that pay when someone calls an 800 number or goes to a specific internet address, however those are with low rated shows, where standard advertisers arent found. Either way, you are comparing Apples and Oranges.
That makes one hour of internet & four hours of TV every day. These survey results made me recall my teacher who once said that humans are cognitive misers. If that is taken to be true, it is understandable that people prefer entertainment that is packaged & passive in form of TV programs instead of internet that is active & user driven.
I guess it would be also much different for knowledge workers (an increasing segment among adults) who use internet for/while work. While working it is natural to pay less heed to adverts, compared to when you are surfing for leisure.
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