Global spending for online advertising will reach $33 billion by 2004, one-third of which will be spent outside the US, according to research by Forrester Research.
The increase in online ad spending will come at the expense of several sources, including the reallocation of dollars from more traditional forms of media, according to Forrester’s report “Internet Advertising Skyrockets.”
“Spending for online advertising is being driven by a self-perpetuating cycle,” said Charlene Li, senior analyst in New Media at Forrester. “As the online audience continues to grow and e-commerce accelerates, more and more marketing dollars will be drawn to the Web. These trends will be enhanced by the arrival of new technologies that improve the accountability of Web advertising.”
Forrester projects that online advertising spending in the US will grow from $2.8 billion to $22 billion by 2004. That figure will represent 8.1 percent of the projected advertising expenditures for traditional advertising — exceeding magazine, yellow pages, and radio spending.
|Online Ad Spending Outside the US in 2004||Region||Spending||Percent of
|Latin America||$1.6 billion||11%|
|Source: Forrester Research|
According to Forrester, the compound annual growth rate for Web advertising will be 51 percent over the next five years, roughly tracking the growth of online retail. Meanwhile, higher consumer usage of the Web will create excess ad inventory, lowering CPM rates, and making Web advertising more cost-effective and accessible to new marketers.
Although increased ad spending would seem to give content sites leverage in the ad selling process, page view growth will far outpace ad spending growth, Forrester found. With new ROI tracking tools and plenty of ad inventory available, marketers will increasingly demand performance-based deals. By 2004, Forrester predicts that more than half (53 percent) of US online ad spending will be based on performance.
Over the next five years, the Internet will siphon $27 billion, or 10 percent of all US ad spending, away from traditional forms of media. This reduction will occur through a combination of direct transfers of dollars, downward pressure on pricing, and the emergence of new forms of advertising for devices such as interactive TV and cellular phones. While all forms of traditional media will experience slower-than-expected growth, newspapers and direct mail stand to lose the most, perhaps as much as 18 percent of their expected 2004 revenues, according to Forrester.
Outside the US, online ad spending will increase from $502 million in 1999 to $10.8 billion in 2004, capturing 33 percent of global spending. Worldwide markets will grow at a sustained, faster rate because they will start from a smaller base and learn from the US experience with the medium. In Europe, online ad spending will total $5.5 billion in 2004, representing 5.1 percent of Europe’s ad spending. The Asia/Pacific region will spend an additional $3.3 billion, representing 5.9 percent of traditional ad spending in the region. Latin America will grow to $1.6 billion in 2004, or 11 percent of regional spending.
“One of the most interesting developments we expect to see over the next five years is the rise of multinational portals,” Li said. “The law of ‘the big get bigger’ applies tenfold to the Internet. Beyond the obvious economies of scale, international network sites provide an easy regional buy for global marketers.”
For its report, Forrester interviewed 50 online and offline marketers, and drew upon publicly reported revenues of Internet companies and its Technographics® data about consumers’ online usage.
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