The online information services industry entered 2005-06 in the midst of a strong growth phase. The industry recorded a decade of mainly double-digit revenue growth. It took the dramatic collapse in the global financial markets to stunt strong industry growth, as the global financial crisis crippled the key industry market, the financial services industry.
The rapid improvement in information technology networks throughout the past five years created many growth opportunities for industry participants. The ease of access to news, corporate information and directories created an entirely new industry based on rapid communication of current data. Increasing internet penetration also enabled industry operators to introduce free content with revenue derived from advertising. In the good times, this proved to be a highly successful operating model, as the increasing traffic flowed through to higher advertising revenue.
However, industry operators suffered in the poor economic climate as key demand determinants shifted significantly. The major market, the financial services industry, suffered greatly during 2008-09. Additionally, advertising budgets across the board were slashed in an effort to protect organisations’ bottom lines. As a result, 2008-09 was a tough year for the industry, recording a loss of 3.9% year-on-year growth, as both free and subscription information providers suffered from reduced demand.
In 2010-11, the industry is set to return to growth, forecast to appreciate 0.2% year on year, as confidence returns. Industry revenue is estimated to grow by 6.2% per annum over the past five years to total $1.56 billion. The higher business confidence will see greater advertising spending and a willingness to invest in premium information providers as companies look to some strategic growth opportunities that exist in down times.
The desire for up-to-the-minute and longer-term news analysis is driving imports of information. In particular, the news sector is driving this trend. Companies such as Thomson Reuters are increasingly centralising their news-gathering operations. As such, more information is available from overseas than ever before. Greater demand from Australians for news and information from beyond national borders is also feeding the trend, which is pushing imports up to about 50% of domestic demand.
Over the next five years, industry revenue is projected to grow 7.1% per annum to reach $2.2 billion in 2015-16.
The industry recovered from the correction in 2008-09 and returned to growth in 2009-10. IBISWorld forecasts that the industry will continue its long-term growth over the next five years. The global economic uncertainty is ensuring that business demand for current and easily accessible information is constantly greater. As soon as business confidence and corporate profits begin to increase, it is likely that growth in demand for online information providers will once again resume healthy growth.
Over the five years through 2015-16, online information services industry revenue is forecast to increase at an average annual real rate of 7.1%. The industry will benefit as the Australian economy recovers and further promotional revenue is apportioned to the popular online news websites. There will be new entrants to the industry, with industry enterprises forecast to grow by 1.9% per annum. However, in a similar fashion to the past five years, it is the larger global operators that will leverage their strong brands to maintain market share.
Industry structural changes
Enterprise growth is forecast to remain significantly below industry revenue growth. Comparatively mild establishment growth is forecast due to an increase in merger and acquisition activity as major firms consolidate their operations by incorporating many smaller and mid-size firms. The constantly changing nature of the industry will create difficulties for new entrants with no existing brand presence to achieve any significant growth.
In addition to inter-industry consolidation, there will also be an increased level of alliances and mergers between industry operators and content providers. This is a nod to the convergence trend permeating the entire information and communications technology (ICT) sector. The convergence trend describes how the boundaries between previously distinguishable services and products are now dissipating due to the digitisation trend. This will lead to greater access to information and the prospect of a slight reduction in the viability of free providers as paid content will grow cheaper and improve in quality.
The industry workforce is forecast to outpace industry establishment growth, but also be less than revenue growth. IBISWorld forecasts that the industry workforce will expand by 3.5% per annum, with a particular focus of new employees around new services. Industry participants will continue to try to rationalise employee numbers in traditional fields such as researchers and analysts. Wage growth, forecast to increase by 4.8% per annum, will outpace the expansion in the workforce due to a higher proportion of highly skilled workers. This is because the simple tasks performed by lower-wage workers are becoming redundant and ultimately replaced by automation.
Australia is transitioning toward a digital economy, which will mean that more social and business activities will occur in an online environment. The rollout of Australia’s $43 billion fibre-to-the-home high-speed broadband network, and continued progression toward the fourth generation in mobile broadband technology will be the driving force behind Australia’s changing economic environment. The greater use of online activity will be a boon for industry operators, as it will foster industry revenue growth due to easier access available to businesses and households for industry services.
One of the significant changes will be a greater adoption of e-commerce as a means of shopping. The internet opens up international markets to the domestic shopper. As consumers look internationally, more companies will be inclined to take their business offshore, and these companies will require greater amounts of information to undertake such actions.
The financial collapse of 2008-09 and the resultant global recession that appears set to stretch into 2010-11 will lead to a highly tentative business sector. The fragile global economy will create extremely high levels of volatility, which intensifies business risk. The easiest way to eliminate risk from a business decision is to access information, which will be the major driver for industry demand in the immediate future.
In the immediate future, the industry will benefit from its counter-cyclical tendency. The fragility of the global financial markets is creating a greater demand for information. Many companies will view the current contraction in the world economy as a large growth opportunity. As such, operators with strong balance sheets and looking at potential expansion will require enhanced information to aid potential expansion efforts. Additionally, struggling participants will also require increased information to adjust to the changing spending habits.
The developed world experienced a fixed-line broadband explosion in the past five years. In the next five years, developing nations will make large ICT gains, which will see broadband penetration increase dramatically. The developed world will see rapid expansion in mobile broadband penetration as next generation infrastructure rolls out. Greater global connectivity will further increase industry globalisation.
Australian domiciled industry operators will face increasing levels of competition from much larger international companies. This is due to a combination of technological change, costs of collection and dissemination of the information, and increasing price-based competition. IBISWorld forecasts that large global industry participants, such as Google, Thomson Reuters, Bloomberg and Yahoo, will enjoy revenue growth that will outpace the rest of the Australian industry. The increased global connectivity will further diminish domestic barriers, and large operators will be able to collect information on a global scale. IBISWorld forecasts that import revenue (i.e. internationally sourced information distributed to Australia) will increase by 9.0% per annum in the next five years, increasing its share of domestic demand to 35.4% in the process. The continued penetration of high-speed broadband networks will facilitate strong growth from internet search services. Internet search providers will also benefit and thus increase their presence as further advances in search algorithms enable more advanced and specific searches.
It is expected that the growth will come from newer niche services, rather than areas such as news services, which will remain highly price-competitive. The rapid advances occurring in ICT infrastructure and technology will enable a raft of new growth opportunities for industry participants in the future. The new growth areas for online information services will come from digital TV datacasting, advanced interactive TV services and a raft of mobile services as navigation and tracking services.
The pay-TV arrangements under the programming channel and content sharing arrangements between Foxtel and Optus have reduced costs in this area. The arrangements also delivered a greater number of households with new digital services. The historic analogue TV transmission will cease in 2013, and digital transmission will reach all Australian households.
Key Success Factors
IBISWorld identifies 250 key success factors for a business. The most important for this industry are:
- Use of production techniques that add value to base product(s): Developing value added and associated products linked to the database is important in this industry. These products can be sold at higher prices to subscribers or on an access fee basis.
- Ability to vary services to suit different needs: It is important to ensure that the database can be accessed by existing and potential clients’ hardware and software.
- Having a cost-effective distribution system: A cost-effective mode of delivery is a key success factor in this industry. The distribution system should use the internet with reasonable cost and meet client access requirements.
- Company’s product is user friendly: It is important to have a system associated with the database that allows for easy access and analysis by clients.
- Access to highly skilled workforce: Having skilled staff in the data input, delivery and site maintenance stages is a key success factor in this industry.
- Provision of superior after-sales service: It is important to provide some backup training, manuals and other assistance to clients. Online assistance, call centres or help lines also provide high levels of customer service and satisfaction.
- Production of premium goods and services: Providing a database of significant value in terms of type, quality, timeliness and cost effectiveness to clients is important in this industry.
- Undertaking technical research and development: It is important that companies undertake ongoing research and development on existing and new products to provide an ever evolving and valued product.
Karen Dobie is the general manager of IBISWorld