Growth Slows, But Online Ads Still Outpace Other Media

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Internet ad spending is set to grow 26.8 percent this year to $15.9 billion for 2006, down slightly from last year's rate of 30.3 percent, according to the latest research from eMarketer.

The minor slowing of growth is consistent with the 2.2 point drop from 2004 to 2005, and signals a maturing market, but one that can support sustainable growth, according to Geoff Ramsey, CEO of eMarketer.

"Total media in the U.S. is growing at less than 5 percent this year, to put this in perspective," Ramsey said. "The Internet is not immune to economic hiccups, and we're seeing slow but subtle signs that consumer spending is not what it could be."

To arrive at its projections, eMarketer considers the estimates of several research firms, including Jupiter Research, TNS, Forrester, and nearly 20 other research firms and financial analysts. It combines that data with surveys of its clients, and other independent research. Its figures are constantly updated with real-world results, so even the news from Yahoo last week that it was seeing softness in ad sales in certain verticals is weighed into the calculations, though that plays only a small role, Ramsey said.

"Any one player in the market can have a rough time with a particular segment, but that doesn't mean everyone else is," Ramsey said. "Yahoo does control about 18 percent of total online ad spend, so if they have a stumble, it's going to effect our numbers."

Although growth is slowing, the growth that remains is likely to be sustainable growth, Ramsey said. For 2007, eMarketer expects even more modest growth of 15.1 percent, followed by 17.5 percent growth in 2008. Even as spending growth slows, U.S. online ad spending will continue to increase, from $15.9 billion this year, to more than $21 billion in two years, surpassing $25 billion by the end of 2010.

That growth puts Internet ad spending on course to overtake radio for the first time in 2008 as a percentage of total ad spend. This year, 5.7 percent of all ad dollars are going online, and next year that figure is expected to rise to 6.4 percent, reaching 8.9 percent in 2010.

Paid search continues to garner the lion's share of online ad spend, accounting for more than 40 percent of each year's spending from 2005 through 2010. That will change as more advertisers buy rich media ads, including online video, which will double from a 9 percent share in 2006 to 18 percent in 2010. Display ads will drop slightly from 21 percent to 17.8 percent over that same period.