Report: Global Online Ad Spending to Hit $15 Billion by 2003

Growth in the Internet-user population and the arrival of mainstream advertisers will push global spending for online ads to more than $15 billion in 2003, according to a new report from Forrester Research Inc.

Forrester estimates that U.S. spending for Internet ads will grow from $1.3 billion in 1998 to $10.5 billion in 2003. Despite this eightfold increase, the U.S. share of the worldwide market will decline from 87% in 1998 to 70% in 2003.

International ad spending will be led by Europe, where the online market is expected to grow from $105 million in 1998 to $2.8 billion in 2003, the report said. This spending will be pushed by an increasingly cohesive European market, a growing Internet population, competition from U.S.-based companies and maturing technologies.

Slowed by ongoing economic difficulties, Asian ad spending will grow to $1.25 billion in 2003. Dramatic growth in Latin America will be masked by a small Internet population and a low starting point for ad spending, the report said.

“The Internet has arrived as an accepted advertising medium,” said Bill Bass, director of Forrester’s Media & Technology Strategies service and co-author of the report. “This is evidenced by the amounts that will be spent for online ads during the next five years, as well as by the arrival of large mainstream advertisers. The next challenge facing media companies will be developing the revenue opportunities presented by a growing international market.”

To succeed, media companies will need the high volumes that the international market offers to offset low online ad margins, which Forrester expects to settle near 10%. Media companies that arrive in a market early, partnering with local service and e-commerce providers, will gain a competitive advantage that will be difficult to overcome later. In particular, Forrester expects the major portal providers and service companies to play key roles in establishing global brands.

“Traditional media companies that are late to the Internet can take advantage of the Net’s unique dynamics by investing in global category-killers, partnering with best-of-breed local content providers, or buying up local resources to corner a particular category, like classified ads,” said Chris Charron, a senior analyst and co-author of the report. “Media companies with established tools and services should export them to gain an early share in emerging markets.”

Interestingly, Forrester said it expects per capita spending for online ads in the United States to bypass radio and magazine ads by 2003. Internet advertisers will spend $25 per person in 1998–double the amount spent in 1997. By 2003, this number will grow to $104 per person, roughly one-third of per capita spending for television ads but slightly ahead of magazine and radio spending.

The report, entitled “Media’s Global Future,” is based on interviews with major advertisers, advertising agencies, and media companies in Asia, Europe, and North America.

Forrester is an independent research firm that helps its clients assess the effects of technology on their businesses.

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