The economic value of online advertising-based services for consumers
Europeans now spend an average of 24 hours on the internet every month. Almost all of the services that they use regularly—from email, instant messaging and maps to social networks, gaming, music and video sites, and to search and price comparison—are free, funded largely by online advertising (i.e. users getting content provided for free but pay indirectly by exposure to advertisements and by submitting information about their own whereabouts on the net which in turn is used for advertising etc.
A new report commissioned by IAB Europe from McKinsey & Company examines the so called consumer surplus that advertising-supported web services generate for internet users in the UK, France, Germany, Spain, Italy, Russia and the US. The consumer surplus represents the economic value of free web services to users after deducting costs such as access to the internet and paid-for services, and after taking account of the concept of advertising disturbance.
The analysis shows that consumers’ utility and profit through online services, based on advertising, is huge. And significantly larger than the advertising revenues enjoyed by enterprises providing these services.
According to McKinsey, consumer surplus surprisingly uniform across national borders.
Key points from the analysis include:
- 20% of users consume 60 percent of the value of Web services. The 80% generates a significant surplus
- Disruption due to pop up and banner ads, and privacy are important issues for more than half of the users
- Overload of advertising is a challenge
- When people are worried about too much exposure in relation to advertising, they are also willing to pay to avoid it. This price is estimated to total € 20mia. equivalent to approx. € 10 a month at the household level
- For every euro an Internet user is willing to spend to reduce the disturbance from the advertising they receive for € 6 worth of advertising-based network services and benefits
McKinsey’s analysis can be read in its entirety here!
