Online Advertising Steps Aside for Digital Marketing

By 2005, traditional US companies will spend $63 billion annually on digital marketing — multifaceted marketing campaigns that integrate online advertising, promotions, and email strategies, Forrester Research found, but that doesn’t mean the end of the road for Internet-only campaigns.

Decreasing dot-com spending will only temporarily pause online marketing’s growth. Online advertising alone will rise to $42 billion worldwide by 2005, according to Forrester’s report “Online Advertising Eclipsed.”

“Online advertising’s current swoon won’t last,” said Jim Nail, senior analyst at Forrester. “The dot-com tide has begun to ebb — while dot-coms accounted for 69 percent of digital marketing in 2000, by 2005, traditional advertisers will embrace it, driving 84 percent of digital marketing. But the recovery won’t begin until marketers master integrated digital marketing techniques.”

As traditional advertisers learn that online advertising is just the first stage of a campaign, they will augment budgets for later-cycle activities like promotions and email, the report found, boosting US digital marketing from $11 billion in 2000 to $63 billion in 2005 — when it will represent 12 percent of all marketing dollars. Luring customers along the marketing cycle with targeted offers will propel the growth of promotions 42 percent annually, and more than $6 billion will be spent on email marketing in 2005.

Forrester found that traditional offline advertisers will embrace digital marketing in three waves.

  • The early movers — companies that started advertising online before 1999 and include sellers of highly considered products or services like autos and financial services — accounted for 16 percent of offline marketing in 2000. But because they plan to shift 25 percent of the overall marketing budget online over the next five years, they will represent 32 percent of all digital marketing spending by 2005.
  • Mainstream advertisers — companies such as Daimler Chrysler — have hung back and waited to see how the market develops. As their early-adopting competitors increase their spending, these companies will begin to market online in 2002. Because this group will be slow to the market, they will spend only 10 percent of their marketing budgets online. However, 10 percent of their hefty marketing budgets will still account for 41 percent of all digital marketing by 2005.
  • Manufactures of low-consideration products, such as soft drinks and household cleaners, began dabbling online in 2000 and will start to take the Net more seriously in 2002. Because their online budgets represent a lower percentage of the total marketing budget, this group will account for only 11 percent of digital marketing in 2005.

As has been the case with most Internet markets, the rest of the world will not see digital marketing eclipse online advertising for another 18 months. While regions outside of North America represented only 16 percent of overall online advertising in 2000, that number will grow to 27 percent of the $42 billion worldwide online advertising market in 2005.

Online advertising in Europe will grow ninefold to $6 billion by 2005, Forrester found, led by consumer e-commerce initiatives, which will drive the European online ad market from 8.5 billion Euros to 174 billion Euros in 2005. High access charges, lower technology adoption rates, and lower overall per capita ad spending will to stem the growth of online advertising when compared with the US, according to the report.

Online ad spending in the Asia-Pacific region will rise to $4.5 billion in 2005 — while Japan and Australia continue to power 80 percent of the region’s advertising market. But increasing technology penetration in countries with healthy traditional advertising markets will fuel the region’s growth.

In 2000, Latin America was frenzied with a flood of foreign investment, the spread of free ISPs, and the emergence of dot-com entrepreneurs, which set off a temporary Internet boom. However, despite the dot-com meltdown, online ad spending in Latin America will continue to grow to $1.2 billion by 2005.

Forrester surveyed 59 marketers for its report and found that online marketing per company will rise from $550,000 this year to $1 million in 2003.

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