The economic value of online advertising-based services for consumers

The Internet medium has witnessed rapid user adoption of ad-based services. This has in turn highlighted the issue of disturbance due to advertising format intrusion as well as the risk of data abuse (i.e., consumer privacy issues).

In 2010, IAB Europe asked McKinsey & Company to deliver an independent assessment of the consumer surplus of digital services financed by online advertising. This report provides the main findings of that assessment. The assessment was based on a review of secondary research and on original conjoint-based market research estimates of users’ benefits from 16 ad-funded Web services. This research was designed and conducted in the course of Spring 2010 in six major countries: France, Germany, the UK, Spain, ussia, and Italy.

The new research summarized in this white paper offers a robust and comprehensive method for easuring both product and/or service benefits, as well as the likely disturbance associated with using Web services.

Our key finding is that user benefits from Web services are large—very significantly larger than the advertising revenues earned from providing those services, and very significantly larger, too, than any disturbance linked to advertising and privacy issues.

Scaling this finding to the existing broadband population of the IAB Europe countries as well as the US, the estimated consumer service surplus is about €100 billion for 2010, or more than three times current revenue from ad-based services. In other words, the scale of online advertising revenue significantly underscores the massive value consumers derive from the online services they use.

Further, while the majority of users face advertising and privacy issues, the value they obtain from using Web services, separate from the value of access, is six times larger than the value they are willing to expend to avoid advertising disturbance and privacy risks in 2010. In practical terms, for each euro an Internet user is willing to spend to limit privacy and advertising disturbance, the user gets a value of six Euros from using current d-funded Web application services.

The paper covers the following themes:

1. The larger-than-expected, and growing, consumer surplus of ad-funded Internet services
2. Free ad-funded services generate the bulk of consumer surplus
3. Advertising and privacy issues carry relatively little weight as compared to the value of free, ad-based, online services 

You can download the report here