Dive Brief:

• Digital ad revenue in the U.S. reached $26.2 billion in Q3 2018, a 20.6% increase year-over-year, according to findings from the latest biannual report from the Interactive Advertising Bureau (IAB) and PwC shared with Marketing Dive. 
• Marketers invested $75.8 billion in digital during the first three quarters of 2018, 22% more than over the same period of 2017 and marking the highest-spending for the first three quarters of a year on record. Calling 2018 a "landmark year" for digital advertising, the IAB credits the surge in spend with strong growth in the over-the-top (OTT) and direct-to-consumer (DTC) markets. 
• The report was compiled based on surveys of the largest marketers and includes data on online ad revenue from websites, commercial online services, free email providers and other companies selling online advertising.

Dive Insight:

Digital continues to shatter advertising records, with the latest report from the IAB supporting the trade group's previous projections that U.S. digital advertising could have hit $100 billion annually for the first time in 2018. However, the new batch of insights uncovers two spaces that have experienced especially rapid growth over the last 12 months or so as marketers look to combat both cord-cutting and the rise of disruptor brands that are seeing explosive growth. 

Marketers are showing more interest in OTT platforms, which blend traditional TV content with more digitally led, targeted advertising strategies. OTT ad spend was expected to jump 40% and reach $2 billion in 2018, according to a fall update to Magna's U.S. ad forecasts for 2018. Eighty percent of U.S. households were projected by the group to be reachable via OTT last year.

By comparison, national linear TV ad spend was pinned to grow just 1% in 2018 barring cyclical events like the Winter Olympics and midterm elections. While OTT and connected TV remain appealing options for marketers looking to reach cord-cutters or "cord nevers," challenges remain around areas like measurement and frequency and also the complexity of navigating an increasingly crowded space that's potentially due for some downsizing.  

DTC brands, like Harry's, Bonobos and Leesa, are also snapping up a larger share of the market thanks to their savvy digital marketing, agile supply chains and disruptive, largely online business models. The IAB recently released its list of the 250 direct brands to watch in categories spanning personal care to alcohol. Legacy marketers are keeping a closer eye on these businesses and sometimes acquiring them as they look to foster stronger relationships with consumers. 

In fact, one-third of U.S. consumers plan to do at least 40% of their shopping with DTC brands in the next five years, according to new research from Diffusion. However, just 9% of respondents believe that DTC brands offer superior customer service compared to traditional marketers.