The Digital Future in Focus

To read the full report, click on the Attachment at right.EXECUTIVE SUMMARYFacebook-led social media market is redefining communication in the digital and physical worldsSocial networking continues to amass online users and capture an increasing share of their time, redefining how people interact with their personal social circles and brands in both the online and offline environments. Social Networking accounted for 16.6 percent of all online minutes at the end of 2011 and is on track to surpass Portals as the most engaging online activity in 2012. Facebook continues to lead as the driving force behind this shift in consumer behavior accounting for the largest share of online minutes across the entire web in 2011.Bing gains ground in searchAlthough Google maintains a strong lead in the U.S. search market, the most notable story in search this year was Bing’s positive growth trajectory. Bing closed out the year by surpassing Yahoo for the #2 position among core search engines for the first time in its history, bolstered in part by its social search partnership with Facebook implemented in early 2011. While Google still owns two-thirds of the search market, Bing has captured 15 percent of the market on its own and is powering about that same percentage on behalf of Yahoo.Online video boom signals sea change in video ecosystemOnline video viewing witnessed impressive gains across a variety of measures in 2011, signaling a behavioral shift in how Americans are consuming video content. The increasing availability and adoption of long-form video content has driven a dramatic increase in video viewing as consumers exercise their freedom to watch available content however, whenever and wherever they want. More than 100 million Americans watched online video content on an average day to close out 2011, representing a 43-percent increase versus year ago. In addition to more daily viewers, the number of video streams jumped 44 percent to 43.5 billion in December 2011.Digital advertising enters era of increased accountability as brand dollars continue to shift onlineA staggering 4.8 trillion display ad impressions were delivered across the U.S. web in 2011 as brand advertisers continued to shift dollars to the digital medium. This shift in ad dollars has magnified the need for greater transparency and accountability in ad delivery across the digital advertising ecosystem, heralding in an era where digital campaign validation becomes a necessity to push digital ad dollars to the next level.Smartphone and tablets fuel the rise of the digital omnivoreThe rise of smartphones and tablets has drastically altered consumers’ digital media consumption – changing the way people access content, where they consume it and the frequency of consumption. This evolution of digital device interaction has given rise to an age of ‘digital omnivores’ – consumers who access content through several touch points during the course of their daily digital lives. In 2011, the majority of all mobile phone owners consumed mobile media on their device, marking an important milestone in the evolution of mobile from primarily a communication device to a content consumption tool. At the end of 2011, more than 8 percent of all digital traffic was consumed beyond the ‘classic web’ across devices such as smartphones and tablets.E-commerce is back and bigger than everDespite the backdrop of continued economic uncertainty, 2011 was a strong year for retail e-commerce. Throughout the year, growth rates versus the prior year remained in double-digits to significantly outpace growth at brick-and-mortar retail. Consumers remained cautious spenders overall, but increasingly turned to digital commerce due to two prevailing factors: price and convenience. Total U.S. retail and travel-related e-commerce reached $256 billion in 2011, up 12 percent from 2010.CONCLUSIONFacebook IPO raises the profile of social networking and digital advertisingFacebook’s $5 billion public offering, the largest ever U.S. tech IPO, has demonstrated the true power of social media as a profitable enterprise. With a rumored valuation of as high as $100 billion, Facebook has built a company worth as much as McDonald’s in just eight short years. But Facebook is not alone in flexing its muscle on the public markets, with 2011 seeing the successful IPOs of LinkedIn, Zynga and Groupon, while Yelp has also filed for a 2012 offering. As these companies take the public stage, it’s clear that social media has the ability to drive fast-growing and profitable businesses.The strength underlying most of these businesses is the network effect, which says that the more users that enter the system, the more value it creates for other users. This elicits greater participation and interaction among existing users, which attracts even more users and creates a virtuous cycle of user growth. As users become more deeply ingrained into the service, switching costs become high and winner-take-all markets occur – at least within particular market segments. Network effects have been critical to the success of many leading Internet companies, such as Microsoft, eBay and Amazon, and are playing out in a similar fashion for these social media sites.As network effects drive user growth and engagement, it opens the doors to robust advertising-based businesses. As the top U.S. display ad publisher, Facebook is driving billions per year in ad revenue and reportedly hopes to add to its totals by monetizing its substantial mobile traffic. The digital advertising market is growing quickly as large brand advertisers continue to ramp up their investment in the medium, which is just another indication that the wind is at the backs of Facebook and other social media companies as they take center stage on the stock market.2012 Summer Olympics illuminate the rise of multimedia consumptionAs the largest global sporting event, the Olympics in many ways represents the pinnacle of media coverage with a virtually continuous broadcast of the seventeen day event’s triumphs and tribulations. With the continued evolution of media platforms, we can expect that the upcoming 2012 Summer Olympics in London will see the most expansive use of multimedia to ensure that viewers have access to the latest events and highlights wherever they may be.Expect that smartphones and tablets will play an increasingly important role in the Olympic Games as fans view events and keep up to date on their national teams on these various devices. For some perspective, consider that during the 2010 Olympic Games in Vancouver, the iPad was still just a rumor and the number of smartphone owners was less than half its current size. Now both tablet and smartphone users represent a substantial audience, not just for the Olympics, but for the many large advertisers that align themselves with the Games.Social media also promises to play an important role in this year’s Olympics as citizens around the world connect to share, in real-time, the joy of victory and the agony of defeat. With each Olympics, historic feats will be achieved and moments of national glory captured for posterity, and we can be certain that this year’s games will feature a global community that is more connected – and interconnected – than it has ever been before.Social media a democratizing force ahead of U.S. presidential electionWhat was once dismissed as a leisure-oriented activity, social networking has reached new heights of legitimacy as a force for democratization, transparency and as a shaper of global movements. Events such as the 2011 Arab Spring saw social media play a leading role in revolutions across the globe, acting as a catalyst for the dissemination of ideas and the organization of people around a common cause. On a domestic level, social media has been an organizing force behind political movements such as Occupy Wall Street, where it connected people both physically, around common organizing locations, and emotionally, around a common spirit of indignation at an unfair system.As we approach the 2012 U.S. Presidential Election, social media will play a significant role in the battleground of ideas between the presidential candidates, and will be used by their campaigns to mobilize voters. Candidates first embraced social media as a meaningful part of their campaign strategy in 2008, but they were only at the tip of the iceberg. Today the digital landscape is vastly different from the last election, requiring significantly more investment in social and digital strategies in order to reach voters. In November 2008, for example, Facebook had just 45 million U.S. visitors, compared to December 2011 when the site reached more than 160 million. Twitter, with less than 2 million visitors a month, wasn’t even on campaign radars and barely any politicians had even heard of the social media tool that virtually every one of them would be using by the following year. In the 2012 election, candidates who do not have well-designed and well-executed social media strategies lose the ability to effectively engage their constituents and compel them to action.Social media will not only be used as a tool for organizing and getting out the vote, but also for online fundraising, which increases in importance with every election cycle. Expect to see social media accelerate the intensity with which online giving occurs, as concentrated fundraising efforts – often referred to as “moneybombs” – become standard fare in the increasingly heated and competitive political environment.Finally, digital advertising will continue to be an important aspect of the political media environment. Though we experience the constant barrage of TV ads in the lead-up to the election, campaigns are turning to display advertising early and often to help build their brands and set their narrative. Campaigns are also becoming more adept at narrowly targeting important constituencies with ad campaigns, whether according to a specific interest or geography, to ensure that the right messages reach the right voting blocs. In 2008, we saw an unlikely candidate in President Obama catch his primary and general elections by surprise with his advanced digital and social media strategies. We can be sure that in 2012, every campaign will be well-prepared and well-armed in the digital battleground.Mobile disrupting the traditional retail sales funnelSmartphones have become consumers’ most-valued shopping companion, a trend that is poised to continue in 2012 as smartphone adoption surges past 50 percent. What has been referred to by some as retailers’ worst nightmare, smartphones are bringing the power of the Internet right into brick-and-mortar stores, arming consumers with the pricing power that was once reserved for the confines of their home or work online shopping experience. With just a few swipes on their touchscreen, consumers are now able to compare prices, locate a store that offers a better deal, read reviews, send product photos and more, all while standing within arms’ reach of a product on the shelf and within feet of the checkout, defying the old adage that getting shoppers in the store is half the battle in making a sale.Not only are smartphones influencing the physical shopping world, these devices, along with tablets, are disrupting the traditional sales funnel. It is not uncommon for a consumer to call upon multiple devices before completing a purchase. They may browse products on their smartphone on the commute to work, research prices on their tablet while curled up in bed for the night, and finally complete the purchase on their PC at work the next day. This new paradigm means that for traditional retailers’ to successfully navigate this changing landscape in 2012 they must build strategies that address audiences across these devices throughout their shopping and purchasing process, or risk losing that customer’s sale to the savvy retailer who looks for the interception by being in front of the consumer at every step of the sales funnel.Mind the ‘Digital Omnivore’Perhaps the most disruptive shift on the horizon for 2012 is the rapid adoption of smartphones and tablets. These devices change the how, when and where consumers connect to digital content, creating the most dramatic shift in digital media consumption since the advent of the personal computer. Understanding today’s multi-device consumer, or what is known as the ‘Digital Omnivore,’ will be increasingly important for advertisers and publishers in 2012 with an eye on the two critical factors to building effective digital strategies: the incremental effect and platform cannibalization.The incremental effect of smartphones and connected devices on reach and engagement is often substantial, especially for those categories such as news and entertainment that lend themselves particularly well to the mobile and tablet environments. For publishers, this means the potential to reach incremental audience and deliver more advertising. For advertisers, understanding unduplicated audiences across these various platforms will be critical to optimizing campaigns. For both publishers and advertisers, understanding how these devices are shifting content engagement will provide a more complete picture of today’s digital consumer and further inform the allocation of digital dollars and resources.But while these incremental opportunities abound with emerging platforms, they may also serve as very disruptive forces to current paradigms. As consumers develop preferences for using new platforms in instances where they once relied on another – such as using smartphones or tablets for browsing on the living room couch instead of using laptops – existing monetization streams are disrupted and may not be adequately replaced by the emerging channel. In 2011 we observed the marked decline of such categories as webmail, weather, maps and others on the classic web, as audiences have turned with increasing frequency to their mobile devices for these activities. Digital commerce continues to take share from traditional retail channels, a trend that will only accelerate with smartphones entering retail stores and tablets becoming a preferred source of late-night surfing. We will also see the continued cannibalization of physical products such as CDs and books as consumers use more ways than ever before to download content online.The incremental effect and potential for cannibalization point to the rising importance of understanding complementary device usage in the coming year. Devices influence the way people consume content and it is important to remember that they do not exist in isolation of one another, but rather have a complementary relationship in consumers’ lives. Understanding how consumers behave across multiple environments is the key for businesses to stay ahead of the curve and ensure their digital businesses minimize the effects of disruption and maximize the incremental opportunities.

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