Predicted Ad Explosion Will Add to Clutter

Online advertising revenue is expected to reach $16.5 billion by 2005, according to research by Jupiter Communications, but the rapid growth will, understandably, lead to an explosion in clutter.

In five years, the research found, Internet users will receive in excess of 950 Internet-based marketing messages per user, per day. I order to outpace the growing clutter, advertisers must diversify their use of online tactics and advertising models. Successful publishers must expand their offerings and develop their sales strategies to address the advertising sprawl, according to Jupiter.

“Over the past two years, we have seen overheated offline advertising spending by access, commerce, and content companies that were willing–even eager–to pay hundreds of dollars to acquire new customers, seemingly without regard for the lifetime value of the customers,” said Patrick Keane, director and senior analyst with Jupiter. “With a renewed focus on accountability and efficiency, marketers turn toward more quantifiable media, such as the Internet. The battle within this cluttered environment will be to capture the attention of online users.”

A Jupiter survey found that marketers plan to increase Internet advertising spending at a higher rate than in any other medium. Approximately 73 percent of advertisers said they would increase their online ad spending in the next 12 months, in contrast to the 43 percent who said they would increase their magazine spending; 37 percent plan to increase their cable-TV budget. This expected growth would make the Internet the fourth most popular advertising medium, behind that of broadcast-TV, radio, and newspapers. Internet advertising will represent almost 8 percent of the total US advertising market by 2005.

Similar to marketers in other mainstream media, Internet marketers will suffer some of the downside of this explosion in the form of extensive clutter. Jupiter forecasts that by 2005, consumers will be exposed to 950 impressions online per usage day, more than doubling from 440 impressions in 1999. Thus, marketers will face the challenge of breaking through the noise as online advertising begins to overwhelm consumers.

Marketers must stay one step ahead of the clutter and use a diverse arsenal of integrated online tactics as well as new models, according to Keane. Advertisers must focus on communicating a consistent message via email marketing, viral campaigns, affiliate networks, and sponsorship, in addition to banner advertising.

Jupiter projects online ad revenues to grow at a compound annual growth rate of 30 percent between 1999 and 2005. Several other trends will also drive the growth of the online advertising market, including the increasing size of the online population, a rise in time spent online, and increasing Internet commerce revenues. While almost one-third of online advertising will come from incremental spending, the majority will come from traditional marketing budgets. In terms of absolute dollars, the largest sources of online ad dollars will be direct marketing (20 percent) and newspaper (14 percent) budgets.

Many of the largest spenders offline, specifically those that sell high-consideration, information-intensive products, will also make up the bulk of the expected $16.5 billion spending online. Jupiter estimates that in 2005, financial services, automotive, computer hardware and software, travel, consumer packaged goods, and media companies will lead the categories for top spenders for online advertising.

The fastest growing and potentially most financially rewarding segment of online advertising is the business-to-business (B-to-B) market, according to a report by Jupiter and Media Metrix.

Data from AdRelevance, Media Metrix’ online ad tracking division, found that the B-to-B segment has grown to 5.6 billion online ad impressions in second quarter 2000, up from 1 billion impressions in third quarter 1999. And the growth in the B-to-B market outpaces the industry average: In fourth quarter 1999, the growth rate of B-to-B online ad spending was just below that of the industry average at 89 percent; however, it easily surpassed the industry average with 94 percent growth in first quarter 2000. Jupiter analysts estimate that based in its current growth rate, the B-to-B market will grow to $3 billion by 2005, representing 18 percent of online advertising spending on mainstream online media.

The B-to-B ads are also spread out over a number of publishers. According to AdRelevance, 80 percent of B-to-B online ad impressions are hosted on 25 publisher sites. Compared with more mature markets, such as financial services and retail, where the majority of online advertising impressions are distributed across eight or ten publisher sites, respectively, B-to-B online advertising is highly fragmented. Jupiter analysts believe that the B-to-B market will become more fragmented, and publishers should continue to devote resources that target B-to-B ad dollars, despite fears that fragmentation could equal lower revenue potential.

The top publishers as ranked by B-to-B advertising impressions, each earn on average $5 million quarterly from this growing market, compared with only $500,000 per top publishers in the automotive industry.

“Publishers must continue to spend the time and money to target B-to-B online advertisers,” said Jean-Gabriel Henry, an analyst with Jupiter. “Not only is the B-to-B segment the fastest growing today, but it is also one of the most financially rewarding for the top sites in the category. We believe that the B-to-B market will maintain a faster growth rate in online advertising than the overall industry for the next three years.”

Online Advertising by Product/Service (in $ billions)
Media Spending	1999	2000	2001	2002	2003	2004	2005
Financial Services	$0.7	$1.1	$1.3	$1.6	$1.9	$2.1	$2.4
Media	$0.6	$0.8	$0.9	$1.1	$1.3	$1.4	$1.5
Computer Hardware & Software	$0.6	$0.7	$0.9	$1.0	$1.1	$1.3	$1.4
Telecommunications	$0.2	$0.3	$0.4	$0.5	$0.6	$0.7	$0.8
Travel	$0.2	$0.3	$0.4	$0.5	$0.7	$0.8	$1.0
Automotive	$0.2	$0.3	$0.5	$0.8	$1.1	$1.6	$2.1
Health	$0.1	$0.2	$0.3	$0.4	$0.6	$0.7	$0.9
Consumer Packaged Goods	$0.1	$0.1	$0.2	$0.4	$0.6	$0.8	$1.1
Other	$0.7	$1.2	$1.8	$2.5	$3.1	$3.6	$3.9
Total Media Spending	$3.2	$4.9	$6.6	$8.7	$10.9	$13.0	$15.0
Classified Listings	$0.3	$0.4	$0.6	$0.9	$1.0	$1.2	$1.4
Total Online Advertising	$3.5	$5.3	$7.3	$9.5	$11.9	$14.3	$16.5
Source: Jupiter Communications