Classifieds to Drive Internet Ad Growth

by Christopher Saunders and Robyn Greenspan

Online classifieds might not be the most glamorous segment of Internet advertising, but the sector is poised to be one of the engines of growth in a rebounding market, according to a new study by Jupiter Media Metrix.

According to the New York-based researcher, spending on online classified advertising grew 38 percent from 2001, rising to $1.2 billion this year. By 2007, that figure will almost double to $2.3 billion – making it the Web ad industry’s fastest-growing segment.

Jupiter attributes much of this growth to marketers’ increasing shift of offline ad dollars to the Internet – as illustrated by the 15 percent drop in traditional classified spending from 2001 to 2002.

“Although 2001 was a transitional year for online advertising, the fundamental value remains clear,” said Jupiter Research Senior Analyst Marissa Gluck. “Online advertising is a strong impetus of consumer action – including increasing traffic and sales, inspiring loyalty and promoting referrals.”

Overall, Jupiter predicts that the U.S. online ad market will to grow from $6.2 billion in 2002 to $15.9 billion in 2007, a compound annual growth rate of 21 percent. In 2007, online ad spending will represent about 7 percent of total U.S. ad spending, up significantly from the approximately 2 percent market share it currently enjoys.

The firm said that the trend would be driven by growth in the online population – especially broadband users – as well as improvement in the economic environment.

While Jupiter also expects average impression-based ad prices will drop between 2001 and 2002 – from $2.60 to $2.50 per thousand impressions – analysts believe media consolidation and larger-format ads will drive prices back up. Faced with decreasing amounts of online inventory, media buyers can expect average CPMs to reach $4.18 by 2007, the firm said.

“Although spending on online advertising was virtually flat between 2000 and 2001, it is faring slightly better than offline,” Gluck said. “In fact, only cable fared better than the Internet, which actually bodes well for the Web as it increasingly adopts the niche-orientation of cable TV.”

As with most attempts to calculate and predict industry-wide revenue, Jupiter’s figures doesn’t match other researchers’ findings. In their most recent findings, PricewaterhouseCoopers and the Interactive Advertising Bureau (IAB), for example, found that classified ads grew from 4 percent of the industry’s 2000 revenue ($184 million) to 10 percent (or $820 million) of 2001 spending.

Contributing to the rise in Internet classified advertising is the proliferation of online real estate listings. Research from Borrell Associates indicates that some realtors have begun shifting home listings away from local print media to their own Web sites, where they hope to find a better return on investment.

The study, based on in-depth interviews with agents, brokers and multiple listing service (MLS) executives across the U.S., illustrates a growing population that has shifted from newspaper readership to the Web.

Realtors spend approximately $3.5 billion per year on real estate advertising in newspapers, representing 5.8 percent of total newspaper revenues, and an additional $3 billion is annually budgeted for free-distribution rack publications. The rising cost of newspaper classified advertising, compounded by a poor return on investment, sets up the perfect opportunity for a move to the Web by realtors.

Borrell anticipates that newspapers will still play a significant role in the real estate industry, where they are strongly positioned to provide more dynamic, cross-media packages that give realtors better lead generation and increased interactive functionality. But first, newspapers will need to step up to the plate and recognize that the Internet has revolutionized the real estate market.

“In the short term, newspapers may be whipsawed by the triple threat of changing home seeker habits, rising realtor sentiment against print classifieds and the increased ability of realtors to post all the local listings,” notes Borrell Associates’ president and CEO Gordon Borrell. “In the long term, we think there’s a strong potential of a win-win for both industries, as well as for consumers,” as newspapers learn to reposition their offering to better provide realtors with the tools they need to be successful in the local market. “Over time, the smarter, Internet-savvy newspapers will be viewed as a tool for lead generation and Web site development, rather than as simple providers of ads in the back of a real estate section,” Borrell says.

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