Online Ad Spending Predicted to Reach $11.5B by 2003

Online advertising is expected to grow to $11.5 billion in 2003, surpassing dollars spent in some traditional media, says a new industry report.

Financial services, automotive and media ventures, not packaged goods, will lead the spending, says the report from Jupiter Communications.

Future online advertising will look less like traditional advertising and have far-reaching effects on the off-line world (including erosion and increased expectations), says the report, released at the Jupiter Online Advertising Forum in New York.

Online advertising revenues have already surpassed those for outdoor advertising and will exceed spending for cable advertising and equal roughly three-quarters of today’s radio spending by 2003, the report says.

The media, financial services and automotive sectors are predicted to account for nearly half ($4.2 billion) of all online ad spending in 2003. Compared with their 18 percent share off-line, consumer packaged goods companies, will represent a much smaller slice (7 percent) of the online advertising world even into 2003.

“Online advertising will serve as a catalyst for change in the traditional ad business. Media integration and the inevitable erosion of traditional markets will be more important than the effects of online ad dollar growth,” said Patrick Keane, senior analyst and director of Jupiter’s Online Advertising Strategies. “This is less about the online medium evolving to fit advertisers needs than it is about advertisers evolving to fit the needs of the medium, and ultimately, consumers.”

The classifieds market is expected to be one victim. For the online classifieds market, price erosion poses a serious threat. Online classifieds is expected to grow from one percent of the overall classifieds market in 1998 to 6.4 percent by 2003, but revenues will only reach $1.4 billion. The proliferation of free and deeply discounted models will prevent the revenues from growing with usage, says the report.

Keane said that advertisers must stop thinking of online ad media as separate from off-line efforts. In a recent Jupiter survey of leading online advertisers, only 30 percent currently use cross-media audience measurement or reporting, and 57 percent said that they never or infrequently compare online and off-line media performance.

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