The Internet's "footprint" has grown exponentially since the online world first became accessible to consumers in the late 1980s. By mid-2012, the Internet had reached 2.4 billion people, and while most developed markets are now mature with online penetration rates of 80 percent or more, it seems clear that emerging markets will ensure that Internet growth continues (e.g., Internet penetration in China was 42.4 percent in 2012 and is expected to be 52.1 percent in 2016).
In parallel with growing penetration levels, the average time users spend online is rising constantly. In the US, usage has increased from an average of 5.2 hours a week in 2001 to 19.6 hours in 2012. People now spend more time on the Internet than on any other form of entertainment except television. Industry observers expect online growth — in terms of both reach and usage — to continue, since telecoms infrastructure is still being deployed and Internet usage diversification appears to be limitless.
The telecoms industry is deploying infrastructure that should boost Internet penetration even further. In countries where broadband is already accessible, Internet quality will increase due to the introduction of new innovations such as fiber optic technologies and upgraded conventional cable. Telcos in developing countries are building new networks. For example, China's planned Internet network will cover 100 percent of the population by 2016, while only 83 percent have access today.
What's more, the number of Internet-capable devices continues to expand as smartphones become even more popular and tablet demand explodes. As a result, the Internet's value proposition continues to improve every day. Once primarily an information source, it has morphed into a key communication tool, a work place, a TV replacement, a marketplace, a game center, and much more.
The Internet's ubiquity has made it an inescapable tool for consumer companies for two reasons. First, it has become a tool for companies to interact with customers. Second, the Internet's increasing importance to companies in its unmatched role as a gold mine of customer intelligence. Consumers spend hours every day on the Internet and leave behind large amounts of information about who they are and what they seek. Their daily Internet journeys reveal their online interests, the people they contact, the content of their communications, the purchases they make, and so on. While these consumer actions are similar to what goes on in the "real" world, on the Internet this information can be collected, recorded, and analyzed, which opens the door to the use of "big data" and advanced analytics.
In 2012 alone, Internet users generated four exabytes (4 x 1018 bytes) of data, fed by more than one billion computers and one billion smartphones. On Facebook alone, users share 30 billion pieces of content every month. What's more, in 2010, there were five billion mobile device users and 30 million networked sensor nodes — numbers that have grown by 20 and 30 percent a year respectively since then.
While industries continue to collect all of this online information, so far, no one has been able to crack the "big data code." In other words, the exabytes of data compiled on the Internet have not yet enabled companies to generate the super-targeted communications to consumers they seek.
Take display advertising, for example, which remains fairly random. So far, two different targeting techniques for display ads have emerged. The first involves retargeting (i.e., carrying out specific follow-ups — via e-mails and targeted banners — with Web users who have visited the Web site and not purchased) while the second enables marketers to select the Web sites on which to advertise based on their audience. For either technique to be really effective, companies would still have to adapt and customize their advertising based on Web user profiles and interests. As a result, the relevance of display advertising has yet to progress beyond its outdoor ancestors, billboards, which today can display a unique picture to any passing car or pedestrian. Big data offers companies unlimited possibilities to improve their marketing efficiency.
McKinsey has developed an approach for accessing the power inherent in big data that's based on a simple principle: companies can profile Web users based on their Web histories and then customize their digital advertising as needed. Experience shows that the approach offers 250 percent greater efficiency than current practices.
This approach has four key steps: 1) profile users, 2) link to products, 3) tailor advertising, and 4) integrate algorithm.
The results of this refined approach to digital marketing, as demonstrated in a pilot project, suggest impressive potential, with tailored campaigns increasing digital marketing ROI by 250 percent.
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