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Segment definition
This segment comprises spending by advertisers either through a wired Internet connection or via mobile devices. It consists of paid advertising placed via search, classifieds (marketplaces), banner/display/video and affiliated.
The video sector, which encompasses online television and video-on-demand advertising, is not covered in detail in this chapter, as it is already included in the Television advertising segment. In-stream and in-banner video advertising are included in the banner/display channel and are not shown separately.
According to industry estimates, almost 3 out of 4 online advertising francs spent in Switzerland will flow directly to the USA in 2018.
Business innovation
The business with classifieds (online marketplaces) is facing an environment of technological change and new competition. The latest technologies such as artificial intelligence and blockchain as well as the entry of international OTT players are having a major impact on this business area.
Swiss media companies are intensively expanding their classifieds business. Digital intermediary platforms for the rubrics "Real Estate, Car and Job" offer an extremely attractive environment for online advertising with broad reach and target audiences with specific interest. Tamedia and Ringier are Swiss market leaders in this area.
The media houses Ringier and Tamedia have a 50/50 joint venture in JobCloud. This company includes i. a. the two leading job portals in Switzerland: jobs.ch and jobup.ch. Examples for the rubrics “Real Estate and Car” are Tamedia’s platforms homegate.ch and autoricardo.ch and Ringier’s marketplaces (in JV with MOBILIAR) ImmoScout24 and AutoScout24. The media companies’ portfolios also include marketplaces such as ricardo.ch or tutti.ch (Tamedia) and Anibis (Ringier/MOBILIAR).
Leading-edge technologies like Artificial Intelligence (AI) are finding increasing use in the classifieds business. Smart solutions for image recognition as example will further improve usability. Soon, sellers will probably only load a picture of a sales object onto platforms like Anibis or tutti.ch. Then the smart system will automatically create a short description, make a price comparison and suggest the object directly to online customers with potential interest. With the aim of making placement as simple and intuitive as possible, Ringier acquired in 2017 a minority stake of the Next-Gen-Marketplace enterprise LaLaFo. Its approach is based on innovative AI technology. Blockchain applications are also being examined more closely by the Swiss media companies, particularly for the real estate sector. Tamedia recently invested in the Blockchain based marketplace Lykke.
The international competitive pressure in the classifieds sector in Switzerland is increasing. In the job advertising market, international player such as “Indeed” and “Glassdoor” are increasing their presence in the market. Google and Facebook have also launched their own job listing functionalities. In the real estate sector, "Facebook Real Estate" is currently a hot topic amongst many brokers and private sellers, given the steadily rising number of people who are looking for an apartment directly via social networks.
“Investments in technological renewals and innovations are essential, especially in light of the increasing competition from international players. Companies such as Facebook are launching new features for their marketplaces at a high pace, thereby constantly upping the bar. While the major focus is with investments into our existing companies, we also grow our overarching functional expertise such as data analytics and engineering as well as invest in innovative start-ups.”
The shift from a pure intermediary business to an ecosystem is also a very promising trend in the classifieds sector. The aim of the media companies is to expand the value chain of their platforms through additional services. The spectrum is broad and ranges from consulting services to ancillary businesses in terms of insurance and financing. International players are also trying to move closer to the transaction business.
The Swiss media companies are focusing on expanding the areas in which they already have a strong market position. As example, Tamedia announced at the end of 2017 a joint venture with Axa and is planning new collaborative offerings for the Swiss vehicle market.
Foreign expansion is also part of the strategy of the Swiss media companies, this in effort to grow their digital platform businesses. Ringier Axel Springer Media AG is strongly expanding its digital marketplaces business in Eastern and Central Europe, and in some cases has even achieved market leadership. Furthermore, Ringier Africa operates the leading classifieds and media groups on the continent and is building up the digital platform market.
“Young markets are more dynamic and enable strong growth. Many countries in Africa are catching up drastically in terms of technological development. We can learn a lot from these countries, especially when it comes to the use of mobile devices. The real digital native are in Africa, which can provide good input for the development of the Swiss platform business.”
Tamedia is also active abroad, for example through a majority stake in the two Danish classifieds platforms Tradono and Trendsales. Tamedia has also invested in “gebraucht.de”, a transaction-based online marketplace for used goods, which offers innovative solutions with respect to the logistics challenges of marketplaces.
Be it at home or abroad, the business with classifieds and marketplaces will be broadened to include related areas. In five years’ time, perhaps, more revenue will be generated from additional digital services and solutions than from the original intermediation and advertising business with classifieds.
The Swiss Internet Advertising market
Market overview
Internet advertising revenues
Switzerland is one of the most advanced markets for internet and mobile usage in Western Europe and internet advertising remains one of the fastest growing segments in the advertising market. In 2017, a new measurement method enabled for the first time revenue to be reported not only for Desktop, but also for Mobile Search in the Swiss online advertising market. Mobile Search has been added to the Search category this year. Moreover, mobile Ads will from now on be presented as an integrated part of the online advertising segments. The more precise method shows clearly that the big winners in this segment are the foreign tech players.
Search
Search advertising has reinforced its position as the cornerstone in the Swiss online advertising market. In 2017, the paid online and mobile search market accounted cumulatively for an impressive revenue total of over CHF 1.4 billion, almost all of it attributable to Google. Consequently, search represents more than 60 per cent of the advertising market. Google has revolutionised the Swiss advertising market over the past few years. A lot of advertising money from large customers and SMEs in Switzerland flows to this US player. Google offers enormous reach for little money and provides reporting in real-time, which allows advertisers to track return on investment easily. According to industry estimates, almost three out of four online advertising francs invested in Switzerland will flow directly to the USA in 2018.
“Google and Facebook are major competitors. That said, we use their platforms to optimise advertising campaigns for our customers and generate high traffic. We do not view the US competition as enemies, but rather as fellow members of our ecosystem, and focus on opportunities to share in their success.”
Display and banner advertising
Display Advertising is stagnant: no significant innovations or changes have been observed in the field of classic display advertising since the 90s. Most of the growth reported for display advertising is generated by international enterprises. Facebook as example generated an estimated CHF 120 million in sales through Swiss online advertising in 2017. Banner Advertising is gaining ground and is expected to grow annually in the low double-digit range in the next five years, driven especially by its mobile segment. However, it might be difficult for Swiss players to maintain the volume of revenues in this segment if it comes to price cuts.
“Publishers are building their own video-teams to produce ever more content and thus attempt to bind users to their websites. Rising consumption and the increasing availability of online videos are the growth drivers for banner advertising.”
Mobile Advertising will be a major growth driver over the next five years. Mobile will grow rapidly with a CAGR of almost 20 per cent, whereas it still will probably not account for more than 50 per cent of the advertising market in the future. The challenge here is that much content is consumed via mobile apps. No cookies can be set in the app to improve reporting on campaign performance and make advertising more valuable for publishers and advertisers. Even delivering millions of Ad Impressions or gaining Video Views does not yet guarantee the success of an advertising campaign. However mobile advertising has become an integral part of the marketing mix and is increasingly important in integrated campaigns. Due to the growing complexity (multichannel, second and third screen) and the changed customer relationship, the smartphone remains omnipresent.
“Mobile is a very important component of advertising campaigns due to the high frequency of use. Yet, advertisers do not rely on “mobile only” ad campaigns. Mobile advertising must always be enriched with other ad formats such as OOH or TV to generate high brand awareness.”
Classifieds
Classified recorded revenues of CHF 414 million in 2017, a 4.6 per cent year-on-year growth rate. The segment comprises online directories (for example localsearch.ch) as well as the online categories “jobs”, “real estate” and “cars”, which are further described in the section "Business Innovation" above.
bPrincipal drivers
US tech companies outpace Swiss media players
Tech Giants like Google and Facebook are a very serious competition for Swiss Media Players. Campaigns including ad search and social media achieve a large reach and therefore are gladly booked by advertising customers. The big growth, which can be seen in the online advertising segment in Switzerland is strongly driven by Google Search and Facebook. Estimates for Google and Facebook sales in Switzerland range from CHF 1.12 to 1.63 billion. Google controls around 95 percent of the Swiss Search sector.
Programmatic Advertising
Programmatic Advertising is a key to success in the digital media market, which allows advertisers to address consumers in an effective way by observing user patterns and collecting anonymized data. Based on the assembled data, the costumers needs can specifically be addressed to generate the desired user experience. The aim is to improve user experience by deciding how many ads are appropriate for a page and where to place them. This automation elevates the efficiency on ad spending tremendously. With effective data management, huge data sets can efficiently be processed in shortest time and ever smarter algorithms for advertising placement are developed. As a consequence the advertisement formats can be switched selectively and automatically according to the interest of a user.
“Programmatic advertising remains in an uptrend. It enables online advertising to become more relevant. The goal is achieved when ads capture the users’ interest and engage them without being considered as disturbing them in any way. This is the primary aim of the targeted approach.”
Tremendous shift to mobile usage
Worldwide, there are 3.8 billion active mobile internet users consuming 17 exabytes each month. This amount is set to triple by 2021 (for perspective: 1 EB = 1 billion gigabytes). In Switzerland, households with mobile internet access has jumped from 60 per cent in 2014 to 78 per cent in 2017. This change is accentuated by Google’s rollout of its mobile-first indexing, which will list mobile versions of a web page first (if available) and should improve the user’s experience as it generates more traffic through mobile devices rather than desktop.
Coalition for better ads
Ads often tend to be more annoying than informative. In consequence, many consumers install ad blockers on their browsers to get rid of this perceived irritation. What they forget is the fact that advertising made the Internet the free and open place it is today. Valuable free content, quality journalism and social interaction via the Internet is financed by ads. For this reason, a number of large international companies have initiated the “Coalition for better ads” to improve the overall ad quality and ban the most bothersome advertisements like pop-ups, noisy auto-play videos and oversized banners. This coalition intends to keep the Internet advertising market flourishing and consumers away from blanket-blocking all ads.
Market growth
We project that the Swiss Internet advertising market will grow at a CAGR of 9.6 per cent through 2022. This growth is being strongly driven by international ad-tech companies that have a firm grip on advertising wallets. The ad segment Search gains its wings from Google, with an estimated annual growth rate of 10.2%. According to improved metrics, the market share of the total Search segment will grow to over 60 per cent by 2022. Additional expansion will come from the Banner/Display sector, which is mainly fuelled by strong advertising efforts in mobile campaigns and the major growth potential for Banner advertising. Banner currently accounts for around one-third of the "Banner and Display" segment, but is nonetheless driving growth. Moderate growth is forecast for Classifieds and Affiliated Ads.
* For the sake of comparability, in 2017 the growth rate for “Search” and “Total Internet Advertising” does not yet reflect the new reported revenues for “Mobile Search”. In the forecasted growth rates, new reported revenue for «Mobile Search» is taken in account.
Comparison to Western Europe
By 2022, almost 7 million Swiss citizens are expected to own a smartphone. Despite the high digital usage rate in Switzerland, digital ad spending has lagged behind most of Western Europe. This was mainly due to concerns about digital privacy, which caused Swiss advertisers to hesitate on spending most of their wallet on digital advertising rather than on more traditional channels like TV. Now demonstrating a higher degree of trust in the digital channel, the Swiss advertising market is already shifting its mix to a digital focus, mainly driven by revenues from mobile advertising. We expect Switzerland’s growth to remain stable over the next several years. Western Europe still has high growth potential, given that most of its national markets are not very saturated.
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Contact us
Bogdan Sutter
Director Advisory, Strategy und Transformation Expert, PwC Switzerland
Tel: +41 79 356 30 80
