Online Advertising Will be a USD 800 Million Market by 2016 inIndia Says an Edelweiss Report

Internet is buzzing so loud in India that it would seem that most Indians are active online. Yet, the truth is that only 7% - 8% Indians are actual active internet users. Yet, given that ours is a country of over 1.2 billion people, 7% - 8% equals to about 100 million, which is a significant number.

Towards the end of last year, Department of Telecommunication (DoT) released the draft of the new Telecom Policy. The draft proposed to make right to broadband connectivity a basic necessity, similar to education and health. It also proposed to increase the broadband download speed from 256 kbps to 512 kbps and up to 2 mbps by 2015. If the draft passes as it is then the number of broadband connections in India will stand at 175 million by 2017 and 600 million by 2020.

These numbers further point to the fact that internet is set for a big boost in India. This means that internet advertising will capture a larger pie of overall advertising. A recent Edelweiss report projected that online advertising will surge to USD 800 million in India by 2016. The report also mentioned that online advertising will account for 8.5% of the total ad pie, which currently stands at 3.6% or USD 255 million.

The online ad market has grown at a CAGR of 44%, between 2007 and 2011, with search advertising accounting for nearly 50%. Next comes display ads and third is classifieds. Google remains the dominant player in the search advertising category and is expected to control 90% of the share of search advertising over the next few years. So, Indian players have very little space to gain foothold here. Display ads and classifieds are the sectors Indian companies need to concentrate on.

Classified advertising market has been growing rapidly in India. In 2011 its value stood at USD 245 million. The Edelweiss report expects the value of classified advertising in India to grow to USD 700 million over the next 5 years. A few classified portals are already doing quite well in the Indian market, tough each of them are restricted to one particular segment. So, we have a Naukri.com for jobs, a Justdial.com for local search and a Bharatmatrimony for matrimony. Internationally this is not the case. A Craiglist.com or Olx.com caters to a number of classified segments.

The key driving points of online advertising, according to the report, will be:

a) Increasing reach of online platform

b) Growing proportion of total ad budget

c) Healthy spend by e-commerce companies to drive higher traffic

Another important driving factor will be the point when consumer companies start using the online medium for branding exercises.

Mobile internet is also gaining ground slowly, but steadily. A study conducted by Juxt Consultants in 2011 revealed that out of the 487 million active subscribers only 14 million access internet on their mobiles. Social networking is mainly responsible for people accessing the web on their phones. With smartphone prices dropping mobile phones will soon become an attractive medium for advertisers.

A few Indian companies like Rediff.com and Web18 have started making inroads in the display ads revenue share. Rediff has annual revenue of about USD 20 million from online display ads and Web18 has annual revenue of USD 15 million. Some new players are approaching online advertising in innovative ways to capture a larger chunk of the market. Noida based startup Simpli5d Technologies launched a Captcha based advertising platform called NLPCaptcha. Over the next 12 months the direction online advertising is heading will be clearer.

Watch out this space for more updates about online advertising in India.