The Evolving Economy

What the rise of digital advertising means for investors

Key points:

What long-term trend are we observing?

Companies are now spending more on digital advertising than traditional advertising, reflecting the changing way in which consumers are accessing information about products and services.

Share of global advertising spend by media, 2018


In the US, annual digital ad revenue exceeded $100bn for the first time ever in 2018 to hit $107.5bn, a 21.8% increase over 2017 (source). This was particularly driven by direct-to-consumer advertising as brands look to cultivate stronger relationships with their customers.

Desktop vs. mobile internet advertising revenue


Consumers are also increasingly shopping and spending on mobile – last Cyber Monday, 54.1% of shopping activity happened on a smartphone or tablet (source). This means that mobile – as opposed to desktop – advertising will be increasingly important to ensure that companies are targetting customers in line with the way that they use their connected devices throughout the day. In the US, for example, advertising revenues delivered on mobile devices rose 39.7% in 2018 from 2017, and mobile now accounts for almost two-thirds (65.1%) of overall internet advertising revenues (source). Similarly in the UK, mobile ad spend surpassed TV for the first time in 2019, and mobile accounted for 45% of all internet ad spend (source).

Particularly interesting is the move away from TV, as advertisers see consumers moving from TV to on-demand services, many of which like Netflix are based on a paid-for subscription model rather than advertising.

What does this mean for investors?

Estimates vary, but the average consumer in a developed market can receive anywhere from around 2,500-5,000 advertising messages every day. Companies then face an enormous challenge in standing out in this highly crowded and competitive space for consumer awareness and engagement. While choosing the right mix of advertising channels is essential, being able to develop creative and interesting advertising campaigns and content will be crucial for companies to develop meaningful interaction with their customers around products and services. Companies like Adobe, for example, aim to support businesses in this regard by providing them with both the market insight and creative tools they need to produce interesting digital content.

We therefore look closely at companies operating in the ‘Discovery’ area of what we call the four Ds of the Connected Consumer – i.e. companies which help connect businesses promoting their products, with the people searching for such goods and services. For example, platforms with large user bases like Facebook/Instagram or Youtube (owned by Google) have historically benefitted from the growth of advertising by offering tailored advertising solutions to businesses. Similarly, Hubspot provides a platform that enables small and medium businesses to promote themselves and generate leads over social media, to help reach customers in a very crowded marketplace.

Read more about the ‘4 Ds of the digital economy’


This seemingly irrevocable trend towards digital and mobile spending offers a rich universe of investment opportunities, as it impacts almost all companies whose products or clients are focussed on the end-consumer. It is worth noting however that while digital is one of the fastest-growing advertising segments, traditional advertising will by no means be relegated to history – companies will need to focus on the right blend of digital, mobile, outdoor, TV, print and other advertising as suits their business model, to ensure they connect with consumers consistently across multiple touchpoints.

Data in particular will play an increasingly important role – both for companies and advertisers to measure the effectiveness of advertising campaigns, but also to help make marketing more targeted and personalised.

Find out our views on why the consumer is king for thematic investors


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