The year 2022 posed significant challenges for the US economy, with inflation notably higher than the previous two years. The residual effects of the pandemic and lockdowns further slowed economic growth, leading to mass layoffs and market uncertainty across industries with many companies drawing back on their marketing budgets. Despite the strained economy, however, the digital advertising industry experienced year-over-year double-digit growth, surpassing $200 billion for the first time.
The digital advertising industry faced significant changes throughout 2022, including the adoption of new privacy laws, such as the CPRA in California, and the implementation of Apple's App Tracking Transparency (ATT) feature which impacted ad revenues of the biggest players in the digital advertising space by restricting targeting capabilities or disrupting the market. In addition, the emergence of retail media networks and their strong revenue growth left some big players struggling to maintain their market share.
Looking ahead, the industry's outlook for 2023 will depend on its ability to comply with evolving privacy regulations and adapt to growing consumer usage patterns and expectations, such as ad-supported streaming and retail media. These factors, coupled with economic uncertainty, underscore the importance of finding alternative and efficient ways to reach and measure audiences with fewer identifiers. Overall, the digital advertising industry has shown resilience, but it will need to remain adaptable to continue to thrive in the face of ongoing challenges.
The US advertising industry showed resilience in 2022 with revenues of $209.7 billion and YoY growth of 10.8% and mobile advertising revenues reached a new high of $154.1 billion, driving the device's market share to 73.5% of total digital t ad revenues. The growth of social media revenues slowed down due to economic uncertainty and Apple's App Tracking Transparency feature. Retail media advertising had significant growth in 2022, with the two largest networks accounting for 45% of the market, with advertising budgets expected to move towards retail media networks in 2023.
State of the Industry: 2023 and beyond
The digital advertising industry is experiencing growth in 2022, but regulatory uncertainty and economic challenges may threaten profit margins and economic contributions. Privacy concerns are increasing, resulting in new state-level regulations and a shift towards privacy-by-design advertising practices, leading to the emergence of new players in the industry such as retail media networks, data clean rooms, the evolution of Connected TV, and contextual targeting. The advertising industry must prioritize privacy and adapt to ongoing state-level regulations while safeguarding consumer data, resulting in new solutions that balance data-driven advertising with user privacy. As a result, Connected TV and retail media networks have emerged as popular channels to reach the desired audience with relevant ads at scale. The definition of "premium" content is changing as viewership habits evolve, with consumer preferences shifting towards creator-driven content. Personalization and measurement, particularly with first-party data, will become increasingly valuable components of premium digital content for advertisers.
Full Year Trends
In 2022, the advertising industry experienced positive growth despite challenges throughout the year. Q1 recorded the highest growth rate of 21.1%, while Q4 had the lowest quarter-over-quarter growth rate of 4.4%. The industry was also impacted by Apple's App Tracking Transparency (ATT) feature, which negatively affected many players in the market. However, each quarter of the year still saw positive ad revenue growth, with Q1 being the strongest performer.
In terms of half-year revenues, the first half of 2022 surpassed a milestone achievement in U.S. digital ad revenues, reaching over $100 billion for the first time with a 16% YoY increase. However, the second half recorded a lower YoY growth rate of 6% to $109.3 billion, mainly attributed to the slowing U.S. economy.
Desktop ad revenues grew at a slower YoY rate of 2.6%, while mobile ad revenues remained strong with a growth rate of 14.1% and reached a record high of $154.1 billion. This resulted in mobile's market share of total internet ad revenues increasing to 73.5%, which can be attributed to the increasing digitalization of everyday life and the growth of digital environments such as 5G and social media apps.
Lastly, the market share of the top 10 companies in ad revenue slightly declined in 2022 for the first time since 2016, indicating a democratization of advertising revenue. Despite the decline, the top 10 companies still generate over $160 billion in advertising revenue, with mid-tier and long-tail publishers also gaining a larger share.
2022 Results, by Format
In 2022, search remained the largest revenue-generating format, accounting for 40.2% of total internet ad revenues and securing a record of $84.4 billion in revenues. Nevertheless, digital video continued to exhibit the strongest growth in terms of dollars, with revenues increasing by 19.3% YoY to reach $47.1 billion, and gaining 1.6 percentage points in market share YoY to 22.5%. Display also showed a substantial increase of 12.0% YoY, with revenues totaling $63.5 billion, and held a 30.3% share of total internet ad revenues in 2022. Digital audio formats also grew by 20.9% YoY, with revenues totaling $5.9 billion in 2022. Although growth rates have returned to pre-2021 levels, digital audio and digital video formats continue to exhibit the strongest performance, surpassing other formats in comparative growth. Conversely, social media formats experienced the slowest growth in 2022, with only a 3.6% YoY increase. While search's market share continues to decline, digital video and display formats are steadily increasing their market penetration. Additionally, AI programs like ChatGPT are changing the utility of search, with major players like Microsoft/Bing and Alphabet/Google investing significant resources in this area.
In terms of advertising formats, programmatic advertising has exhibited sustained growth, increasing its revenue by $10.4 billion to reach a total of $109.4 billion in 2022, reflecting a YoY growth of 10.5%. Non-search revenues have also increased their share of the market, rising from 10.8% in 2021 to 12.7% in 2022. On the other hand, social media advertising revenues reached $59.7 billion in 2022, which marks a growth of $2.0 billion since 2021, with a YoY growth of 3.6%, the slowest seen in the last decade. Most of the growth was observed in the first half of the year, with a $1.8 billion increase compared to the same period in 2021. However, growth plateaued in the second half of the year at $31.4 billion due to the impact of Apple's ATT feature.
Despite the economic challenges of 2021, the advertising industry has shown remarkable resilience, as indicated by the positive growth in revenue across the majority of media types, which has continued into 2022. Cinema and B2B revenues grew by 56.3% and 38.4%, respectively, demonstrating the resilience of these media types in the face of economic challenges. However, there was a decline of 6.0% in revenues from newspapers and magazines compared to 2021, which is not surprising given the shift towards digital media.
The digital advertising industry showed resilience in 2022, experiencing year-over-year growth despite economic challenges and the impact of privacy regulations. Looking ahead, the industry's success will depend on its ability to adapt to evolving privacy regulations and consumer usage patterns, prioritize user privacy, and find efficient ways to reach audiences. Personalization and measurement, particularly with first-party data, will become increasingly important components of premium digital content for advertisers and despite challenges, the industry has shown its ability to adapt and innovate.