The latest industry forecasts confirm that online advertising's rapid growth is set to keep on going
In a country where the Internet penetration is still a measly 23 percent, compared to over 50 percent across Western Europe as a whole, it would seem there is nowhere to go but up when it comes to Poland's online business potential. And the latest forecasts out last week confirm that line of thinking.
Following on the heels of July reports of over 50 percent increases in online advertising thus far this year compared to 2003, new reports from CR-Media and PricewaterhouseCoopers provide something more to look forward to. The forecasts reveal continued increases for the years to come, with an average 56 percent increase this year compared to last year, followed by a 36 percent rise in 2005 and 22.5 percent in 2006. And the new wealth of figures, forecasts and trends reveal a veritable 'happy meal' for market watchers to digest when it comes to Poland's virtual future. And it's near impossible to find any losers in the equation. So who stands to gain the most?
"One could easily imagine that growth next year could be 40 percent, especially as it comes from such a low base," says Łukasz Wejchert, president of Onet.pl, this country's top portal, which is now basking in the glory of having posted the first net profit ever recorded by a Polish portal, with over zł.2 million for the first six months of 2004.
Wejchert, however, isn't keen to rely too heavily on these forecasts.
"You have to put the figures into context," he says. "I look at the figures, but I think it's very difficult to predict."
He goes on to point out how PricewaterhouseCoopers' earlier forecast predicted a 20 percent increase for the first six months of 2004, which ended up being far shy of the over 50 percent explosion that actually occurred. But for Wejchert, either way, with over 35 percent of the ad market and oceans ahead of its nearest competitor, Onet.pl is sitting pretty.
What the experts say
Most analysts more or less concur with the latest forecasts of the two research companies, including Andrzej Jasieniecki, an investment manager specializing in information technology at MCI Management, a venture capital firm that is expected to enter into proceedings to eventually take control of the ailing Wirtualna Polska (Wp.pl) portal, and already includes websites Bankier.pl and Travelplanet.pl in its investment portfolio.
"We have similar forecasts for this market. In the next five years, we'll be much closer to the U.S. in terms of the percentage of online advertising," he says, and in general gives the Polish market about 3-5 years to catch up to where the USA and Western Europe are at now.
Central to Jasieniecki's predictions are that online advertising will double in the next three years and will almost triple by 2010.
And the Interactive Advertising Bureau Polska (IAB), the same Internet advertising industry association that last month reported the over 50 percent gains for the first six months of 2004 gains compared to last year, has just as eagerly jumped on the bandwagon.
"I think this year is critical for online advertising in Poland," says IAB's vice president, Dominik Kaznowski, who goes on to cite the excellent financial results of the portals, in particular the success of top dog Onet.pl and of Interia, currently in the number three spot, who he says managed to grab up another 2 percent of the market (some would say that share was taken from bankrupt Wirtualna Polska, who are newerdeless still number two).
Anybody else?
Indeed it would seem the portals have the most to gain in this, with advertising making up the bulk of their revenues. In fact 70 percent of online ad spending goes to the portals, according to Jasieniecki, followed by 20 percent to broker sites and 10 percent for the rest. Considering the influx of available online ad money, it begs the question - will this make room for another major player?
"In my opinion, there is room for a new global portal," says Kaznowski, noting, however, that this new entrant would of course need the proper experience and enough money for a huge up-front investment.
Interestingly, rumors of Yahoo! launching a Polish site earlier this year appeared to have disappeared just as fast as they arose. But considering the booming market potential, surely there has been no waning in Poland's attractiveness to a global player of this magnitude.
Jasieniecki, meanwhile, disagrees with Kaznowski, saying that "at this stage of development, I think four [portals] is enough for Poland." And although the estimates vary a bit, his numbers show Onet.pl with 35 percent of the market, Wirtualna Polska with 15-20 percent, Interia with 10-12 percent and Gazeta.pl with slightly less than 10 percent.
Of important note is that a CR-Media holding called Ad.net, the country's top online advertising distributor, can be ranked fourth in this list, with approximately 14-15% of the market, although it's technically not a portal. And it is perhaps such companies as Ad.net, who act as intermediaries - linking advertisers to the many websites, that are the next big winners in this growing market.
The online advertising distributors are often a necessary part of the process, especially for smaller websites looking for advertising money and who might not have the marketing ability or connections to reach advertisers. Distributors can connect all types of websites with large-scale ad campaigns, for instance.
"Everybody, when they want to do a big campaign, are probably also our clients, directly or indirectly," says Adam Kwaniewski, commercial director at Ad.net, who says his company represents 100 websites, everybody who is advertising online and the biggest websites as well, including leading online instant messaging service Gadu-Gadu.
Considering that CR-Media is a major shareholder in Ad.net, it's not surprising that Kwaniewski agrees with their latest forecasts. He can also claim the same kind of results for 2004 enjoyed by the portals, as Ad.net similarly posted an over 50 percent ad revenue increase over last year.
Sector trends
As seen in the pie chart on page 4, finance and telecom take up the largest piece of the online advertising pie, but the biggest trend taking place is undoubtedly in fast-moving consumer goods (FMCG).
"Everybody's waiting for FMCG," says Kwaniewski, adding that what is most expected is that FMCG companies will gradually decrease their TV advertising and move it over to the Internet.
Other winners
With roughly 20 percent of the market, online brokers are another group set to gain from the growth trends. Although most of their revenue comes from transactions rather than advertising, for many the ad revenue streams are on the up and up.
"Ad income has been raising for the last two years and now is our second biggest income source," says Piotr Krawiec, marketing and PR director at Money.pl, the country's top financial portal, whose ad revenue went from 22 percent of their total revenue in 2003 to 30 percent for the first half of 2004.
Of course companies like Bankier.pl, another top financial portal, and Travelplanner.pl, a travel booking site - both part of MCI Management's portfolio - will surely benefit as well, despite the fact that ad revenue is not the largest slice of their revenue pies.
Low base rules
Online advertising is still only 1 percent of the total advertising spending in this country, which goes some way in explaining the dramatic trends taking place. After all, Poland's Internet penetration is still one of the lowest in Europe (23.3 percent), with only Hungary (19.2 percent) and Romania (6.2 percent) trailing behind, according to PricewaterhouseCoopers' Global Entertainment and Media Outlook: 2004-2008, and most are quick to point to the incredibly low base that the increases come from.
The PricewaterhouseCooper's report points to increased broadband access as the principal driver for online advertising worldwide. The report also notes that "Internet advertising recovered from a recent downturn and expanded rapidly in 2003," going on to say that "A growing Internet universe, a rapidly expanding broadband user base, and the increased popularity of new online ad vehicles such as paid search and rich media will propel online advertising."
CR-Media's report, called the Ad.media Raport, gives zloty figures for net online advertising spending in Poland for this year and the next two years (as seen in the bar chart on page 4), with zł.75 million for 2004, zł.102 million for 2005 and zł.125 million for 2006. These values are cash expenditures and do not include barters, which is an important point, considering the fact that, according to Jasieniecki, barter makes up around 40 percent of Poland's online advertising.
"In the next 3 years, I think total online advertising, including both cash and barter, will achieve more than 2 percent of the overall advertising market," says Jasieniecki, "and that the growth dynamic will be reduced when it achieves 2.5-3.0 percent share of the overall ad market."
So when will the increases level off?
IAB's Kaznowski, for one, believes that this could happen in about 10 years. But others would prefer not to speculate, and only hope for the best. That camp would include Ad.net's Kwaniewski, who said simply, "I hope the increases won't stop before I retire."
Michael Lars White
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