dgs benefits from the confluence of several market trends.
First, the overall fixed and mobile Internet advertising market in the US is approximately $31.6 billion per year, of which dgs currently procures approximately $20 million for a 0.06% share. The global online advertising market is forecast to reach US$72.76 billion by 2015. This affords significant opportunity for expansion within the existing market.
Second, the Internet advertising market continues to grow strongly with expectation that internet advertising will grow from 17% of all corporate advertising in 2011 to over 50% in 2016, for an approximate 200% increase over the next four years.
Third, corporations are increasingly outsourcing their online customer acquisition processes to specialist providers like dgs in response to the benefits that outsourcing offers.
Fourth, of the outsourced service providers, dgs is growing its market share.
In calendar year 2012, corporations spent approximately $88 billion on global Internet advertising, out of which approximately 50%, or $44 billion was spent on paid search. ZenithOptimedia projects that by 2014 the global internet advertising spend will increase to approximately $119 billion and the global paid search advertising to increase to $58 billion. Through its platform and processes, dgs believes it has the opportunity to address any industry within the entire paid search market.
dgs estimates that currently around 10% of the paid search market is optimized by technologies and services such as those provided by dgs under an outsourced fee-per-sale commercial model. The Directors believe the balance remaining (90%) is either not optimized to the level provided by dgs, or advised and managed by third party providers such as advertising agencies that operate on a percentage of spend or retainer model. In a percentage of spend model, third parties, such as advertising agencies contract with companies to acquire paid search advertising in exchange for a percentage of the aggregate amount spent by the buyer. In a retainer model, third parties will contract to provide procurement and optimization services on a time and efforts or other fixed price basis.
The Directors believe that neither the percentage of spend nor the retainer models align the interests of the corporate buyers of paid search advertising with those of the service provider. For example, under percentage of spend models there is a motivation through the compensation model to increase advertising spend regardless of the actual amount of customer acquisition, revenue or profit that the increase would generate to the corporate buyer of paid search. Similarly, in retainer or fixed fee models, the performance of the advertising being procured in terms of results is not directly correlated with the results delivered to the corporate buyer.
Given the deficiencies in the retainer and percentage of spend business models, the Directors estimate that fee-per-sale models will continue to grow as a percentage of all paid search procurement over the next five years. The Directors estimate that the adoption of the fee-per-sale model will significantly accelerate within dgs’s target sectors over the next 3 years.