Contrary Outlook: Online Ad Forecast Positive

Growth of the Internet ad spend has risen quickly for several years, though many recent ad spending reports and forecasts show signs of a slowdown in the growth rate. An IDC Quarterly Wrap-Up Model report of the U.S. online advertising market details an advertising increase in spending, while slightly slower than in years past.

For the second quarter of 2008, there was a 20.1 percent increase in online advertising spending, totaling $7.01 billion, up from $5.84 billion in the same period the previous year.

A recent report from the IAB and PricewaterhouseCoopers shows a 1.7 percent drop in ad revenue in the first three months of 2008 compared to the last three months of 2007. ZenithOptimedia shows a more positive global outlook than for the U.S. market.

“When you read media accounts at what online advertising is doing, they are very downcast,” said Karsten Weide, program director, Digital Media and Entertainment. “The truth is if you look at the numbers, they are not all true.” He said the growth is slower, but it is still growing at roughly 20 percent per quarter.

“The logic is that most of the growth in Internet advertising comes from money that has been spent in other media before,” said Weide. As much as 95 percent of growth is from traditional media, IDC reported.

In Q3, IDC expects to see a growth rate of 22 percent, or a total of $7.7 billion, though it’s still early for actual tallies.

Ad networks are benefiting the most from the new dollars in the near term, as advertisers are looking to get better return on investment. “When you have economic downturn like now, the advertisers look at how they can save money,” said Weide. “The first call is going to be to the marketing department.”

Advertisers look for the same advertising effectiveness, but with less money. The CPM for ad networks is much lower than for portals. Weide said the quality is not always high on ad networks. “A lot of it is remnant. It’s going to be inventory that is not very effective.”

Ken Graffeo, COO of PointRoll, a rich media advertising unit of Gannett, argues there’s more value on ad networks than portals, saying the portal homepages lack traffic and stickiness. A recent report showed low performance for a portal he wouldn’t name. “I was shocked at how low the homepage performed,” he said.

Ad networks offer niche audience, he said. “You have different social communities, and how they embrace that,” Graffeo said. “If you want to do targeted marketing, that’s where the advantage is, with smaller sites.”

Graffeo said that with a portal there might be a high number of impressions, but the interaction rate is not as high.

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