Chris Reitermann is President of OgilvyOne, the direct response and digital advertising agency owned by WPP. In this video, shot and edited by Eric Mu, Reitermann talks to Jeremy Goldkorn about ad spend on the Internet and what media companies can do to grab a slice of the action.

Miles Young, CEO of Ogilvy & Mather Worldwide added a few more numbers by email, which you can find below, together with a transcript of this video interview. The video is also on Youku for faster loading in China.

Miles Young comments on digital ad spend

Overall, Ogilvy’s revenues from Digital are growing.

Digital business accounts for around 90% of OgilvyOne China's revenues. Globally, digital accounts for around 60% of OgilvyOne revenues and 25% of O&M WW revenues.

Digital remains the most robust sector of the marketing communications pie, with search, mobile and video being strong performers globally. However, even digital is not immune from the effects of the global recession. In the first half of 2009, online display advertising revenue in the US was down 1% on the previous year, although this pales in comparison to the drop in all media which reached 15% over the same period. (Source: Nielsen)

Transcript of interview with Chris Reitermann

Q: What I'd like to ask you about today is all kinds of digital marketing. Fist of all, what do you think is the percentage of advertising and marketing budget spent on Internet, mobile and other digital platforms now, compared to other media?

A: First, it depends largely on categories. Some categories are very very small, like two percent, three percent, some others are twenty five percent and up. If you average it out in China, it is probably four percent, five percent. Some people say it is seven percent, but it is in the one digit kind of percentage.

Q: How does it compare with other countries?

A: It is lower, much lower. In the US, [digital ad spend] is about 10 percent now. I think most of the developed markets, it is above ten. Ten to fifteen

Q: Why is it lower in China?

A: Because A, the whole notion of online advertising is fairly new. I think the whole market and the ecosystem is not as developed yet.

I think a lot categories that are very big in the US and Europe, they are not spending that much yet in China.

It's actually quite interesting, because the categories that are quite big in the US are quite different than in China. Here it is largely IT, for example, which spends very heavily on digital. Real estate is quite big... used to be quite big.

Pharmaceutical very big [in the US], which is here very small. Consumer goods very big in the US now getting very big, which is just really starting in China.

Q: How fast do you think it is going to grow?

A: When you just look at the percentages and the numbers in the analyst reports, it is going very fast obviously but starting from a much lower base

But I think often when you look at those numbers, they don't really tell you the full story, because what the analysts are looking at is the online media spend. Just in total dollar numbers and that's how they define how the category is growing.

But actually there's lots of stuff happening beyond just pure media spending because from our perspective. If you look at the total digital market, you also look at what do companies spend on infrastructure, what do companies spend on people investment, for example. In China, that's ... the big investment right now, where a lot of companies haven't done anything in terms of digital.

Maybe in the past, a very junior webmaster was in charge of digital marketing of the company. Now they really upgrade the skill set, hire senior people. Invest more in research. Invest more in a lot of other parts. That's something you don't even see when you look at the analyst reports.

Q: What about the sort of split between the sort of pure media buys, so you buy advertising at a portal website for example, and other kinds of ad spends, say, clients that want to make their own social networking websites and their own game, something like that?

Do you think there is less and less money being spent on buying media space?

A: Depends on how you define buying media space. If you say like buying banner ads, for example, there is definitely a trend away from that.

I think what a lot of big advertisers look at is to have deep partnerships with a lot of big websites. So instead of just buying banners, they go to the big websites do maybe a one year deal. They get access to a lot of their content, a lot of their proprietary tools or whatever and really provide a much more integrated experience instead of just buying media.

That's actually a pretty big trend. And often, a lot of that spending is not really captured when you look at the analyst reports and media data, stuff like that because often they just measure media data.

Q: In another word, they just count the banner ads so they won't see branded content, or...

A: Exactly. I think there is a big trend from buying pure media to distributing content. Again, the money that the company spent in developing that content is also not really measured when you look at the whole market.

A lot of our clients actually do that much more than eighteen months ago, for example. Now they spend quite significant amount of money on creating content and
distributing that content rather than buying some banners.

Q: Do you still find yourself pushing clients to do digital stuff, or has it come to a situation where they come to you and they say we need to do something
on the Internet or mobile?

A: I think it has changed in the past few months. I think the discussion now is much more how do I make the stuff work, rather than should I do it or not.

I think there's no client you will have to convince that digital is important and growing. I think it is rather the opposite that a lot of clients come to us and say "OK, if I really want to spend 10 percent of my budget online, what the hell should I do? How can I make sure that the money is spent effectively?"

Q: What would you say to media owners who want to take advantage of this? What do clients want out of media owners?

A: I think they want more flexibility, more accountability, and more holistic approach to digital marketing rather than just a media buy.

So I think any kind of website that can go to clients and say "we don't just want your money and put some banners on our home page, but we can also offer you content that you can play with. We have applications, we have games, and really provide a fully integrated digital solution to clients. That's what they are really looking at.

Q: But if media owners do that, won't that take work away from agencies?

A: Not at all, actually. I think it is rather the opposite. What happens more and more is that we work very closely at the very beginning with a few media properties and really see what is possible, and see how we kind of develop a
creative strategy, digital strategy that aligns with what the media has to offer. So I think it is actually we are working hand in hand with them rather than the good old agency approach where the clients come to agency, it develops something creative.

Q: Now 3G is launching in China this year, very slowly. The latest statistics are that there are seven hundred fifty million mobile accounts in China. How close is it to the potential of the mobile advertising being realized. So far, I don't think... everybody is playing games, right?

A: They are not spending real money on it or getting real results, or are they? From our own perspective, mobile definitely is getting much more attention
More and more marketers are starting to use mobile for whatever they do.

But again it is not mobile advertising as we know it. It is not putting banner ads on WAP sites or stuff like that. A lot of our clients were doing stuff in the gaming area, doing kind of branded utilities, applications, stuff like that. So it is really much more providing value to consumers, rather than just annoying them with ads.

I just have very little confidence that the mobile phone will be a great advertising medium, as we know it. To put interactive ads on them.

But a lot of brands that we work with, we're really starting to do quite interesting mobile stuff.

Q: But it is content, not advertising per se.

A: That's advertising too.

Q: Anything you'd like to add about China's digital advertising and marketing landscape in 2009.

A: I think to me this year was quite a good year in a bad year, because I feel that the whole recession has really accelerated the push towards digital and I also think that the big guys have come to the table.

You see it in every country the moment when the P&Gs, the Unilevers, Johnson & Johnsons... That's when the whole industry start to mature, because they are very sophisticated in terms of planning, in terms of measurement, in terms of accountability
for what they do. And I think this year has helped the digital industry in China to mature quite significantly. So this hopefully will help us in the next few years to grow even faster.