advertising-goes-digital-1159551754 The future is digital | © GettyImages/Qi Yang

Advertising Industry

The advertising industry is going digital! Half of German companies currently use digital marketing channels.

Digitalization is affecting all industries. But particularly the advertising industry embraced digital solutions at an early stage. One main shift is the growing focus on measuring advertising performance. A strong concentration on the creative part of marketing campaigns will continue to have a place in the marketing mix, but brands are increasingly focused on the digital part of their marketing efforts as that can be measured more easily. Therefore almost half of German companies currently use digital marketing channels including email, social media, search engine advertising, display, and others.

The Advertising Market in Germany

Revenue increase in past year

According to the German Advertising Federation (ZAW), total net advertising revenues reached EUR 27.5 billion in 2019 – equivalent to a small annual increase of around EUR 50 million compared to 2018. The main single channel was television (EUR 4.4 billion), followed by online search (EUR 4.1 billion) and online display ads (EUR 3.6 billion). All digital channels (including search, display, digital print, classifieds, streaming) combined constitute EUR 11.8 billion in advertising income.

Europe’s second biggest market

According to Zenith media agency, Germany is the second-biggest market in Europe when it comes to advertising spending with EUR 24.8 billion spent in 2019. Only the UK has a bigger market, with EUR 29 billion in advertising spending. The European runners up are France (EUR 13.4 billion), Italy (EUR 8.5 billion), and Spain (EUR 6.6 billion). This means that the German market is nearly as big as the three next biggest markets combined (EUR 28.5 billion).

Global advertising spending forecast to grow despite coronavirus

The coronavirus crisis has had a serious adverse effect on advertising spending in 2020 – down 11.9 percent globally. However, advertising agency GroupM expects global spending to grow by 8.2 percent in the coming year. The US market is expected to shrink by 0.9 percent in 2021, whereas other markets are expected to grow strongly. Also the German market is forecasted to rebound from the crisis with an expected growth of 10.6 percent.

Germany playing digital catch-up

Although the digital marketing share has been on the rise for some time, German advertisers still have some catching up to do when it comes to digital advertising. Globally, digital advertising incomes already make up around 54 percent of the market according to research company eMarketer. In Germany, this figure is still at 39 percent. Hence, classical media is expected to lose market share to digital channels in the future. Budgets will shift from print and classical television advertising to digital channels such as addressable television, digital out-of-home and digital audio as well as classical radio and out-of-home advertising to a lesser extent.

Market Environment of the Advertising Industry

Smart devices driving digital transformation

This change is enabled by the distribution of smart devices in German households. At the end of 2019, around 56 percent of German homes boasted a smart TV, with 29 percent of households having a smart speaker. Online media usage is on the rise. Of the 10.5 hours per day Germans spend with different media, 3 to 6 hours are spent online, subject to age. Seventy-five percent of this time is spent streaming music or video.

Big industry spenders

The biggest spenders in 2019 were Procter & Gamble Germany with advertising spending of Euro 1.1 billion, followed by Ferrero Germany (EUR 515 million), Lidl (EUR 393 million), Amazon Germany (EUR 387 million), and L’Oréal Germany (EUR 363 million). According to Forbes, some of the world’s top 100 most valuable brands are German owned. These include Mercedes-Benz, BMW, SAP, Audi, Siemens, Adidas, Porsche, T-Mobile, Allianz, Nivea, and BASF – all companies with big budgets to maintain brand desirability.

Top three verticals

The three top verticals when it comes to advertising expenditure are grocery stores and supermarkets (EUR 1.8 billion), online services (EUR 1.7 billion) and cars (EUR 1.6 billion). There are around 28,000 classical advertising agencies in Germany. These can be found in all of the bigger cities, with Hamburg in particular standing out as a nationwide cluster of excellence. Of the 50 biggest owner-managed agencies, 16 are based in the northern city. The runner-up is Munich, with four agencies.

Global adtech players

Germany is also advanced when it comes to modern advertising technology (adtech) companies. They help advertisers on different levels to make their marketing efforts more efficient by relying heavily on new technology. There are several German adtech companies among the global top players in their field. Adjust, for example, helps marketers measure the impact of their campaigns. Awin is a big affiliate network. Applift helps companies to acquire, activate and retain users. Remerge supports advertisers with their retargeting needs and CrossEngage makes it easy to stay in contact with users no matter which device they use. All of these adtech companies were founded in Berlin, which is the main hotspot for the industry in Germany. The amount of AdTech companies in Germany makes it easy to find skilled employees in the field.

Market Opportunities of the Advertising Industry

GDPR as an opportunity

The European Union has installed one of the strictest privacy regulations worldwide. On first sight, the General Data Protection Regulation (GDPR) seemed like a threat to many advertising players. However, the new rules are turning out to be beneficial for advertisers obliged to seek consent from users before collecting and storing their data. Although the amount of collected data decreases, the quality of data gathered increases as it becomes cleaner and more reliable over time. This means that advertisers will have fewer users to target but more relevant and interested ones. And fewer collected data points can often times be combined with new targeting methods such as contextual or geo targeting.

First-party data also becomes more important for advertisers who must convince users to give them their data. Well-known brands might have an easier time doing so, whereas newer entrants will have to sharpen their profile and show clear benefits before users provide their consent. Once users agree to share their data, advertisers have to make sure that the data is stored and managed safely and analyzed effectively. Services that allow data to be handled according to GDPR regulations will see increased demand in the future. Companies that have set up proper data management measures will also have a competitive edge over competitors from other non-European regions as more countries put stricter data protection laws into effect. Companies in those countries will have to adapt to those new regulations, whereas GDPR-compliant companies already have the necessary measures in place.

Marketing education and automation

The proliferation of marketing channels available today means that companies are often unsure about which channels to choose to achieve their marketing goals. The trend also goes away from broad marketing distribution to more individual one-on-one communication. This is only possible with digital solutions that allow for highly individualized marketing distribution at scale. Some companies hire external agencies that have a reputation for working in the digital world, while other companies create their own in-house agencies. 

However, the growing number of marketing channels requires a lot more education on the side of the brands in order to fully harness the power of new advertising technology. Small and medium-sized companies often don’t have a dedicated person responsible for marketing. Although the big ad platforms such as Google and Facebook offer self-service tools that make it easier for small businesses (such as restaurants and local retailers) to advertise online, there is still room for improvement. Companies that help with the challenge of refining or automating clients’ marketing operations will find interesting opportunities in the German advertising market.

Programmatic everything

German media agencies historically have a strong focus on television advertising and the production of creatives. Therefore some lag behind when it comes to new advertising opportunities. Whereas 43 percent of German agencies state that they are experts in programmatic advertising, only 12 percent of agencies say that programmatic advertising is actually a fixed part in all of their campaigns. It is therefore no surprise that in Germany, only 45 percent of the brands use social and 41 percent use mobile programmatic advertising, compared to 53 percent and 50 percent in the US respectably. But 39 percent of German brands want to learn how to more effectively target their audience, and 24 percent specifically want to use programmatic technology better. 

This means that adtech companies that offer programmatic solutions – or enable those agencies or even the brands to better use programmatic advertising – have a high chance of success in Germany. New forms in particular, such as programmatic audio advertising (internet radio, podcasts, music streaming, voice assistants) and programmatic out-of-home will be in high demand in the future as the market penetration of those technologies remains lower in Germany than in other developed countries.

Testimonial for the Advertising Industry in Germany

Bastian Winterkemper, Head of Sales, DACH | Liftoff Mobile, Inc

Bastian Winterkemper with backpack Bastian Winterkemper | © 2021 Liftoff

“Liftoff is the leading mobile app marketing and retargeting platform. We chose to expand our business to Berlin as it offers a big pool of qualified talent in the AdTech scene which will help us to accelerate our growth and support even more marketers across Germany. With the expected overall growth of the market it just makes sense to have a permanent presence here.”

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