Reports Predict Web Ads Have a Future

Plenty of money will be thrown at online advertising in the coming years, despite a number of hurdles and a slowing growth rate, according to a pair of reports on the subject.

Total spending on online advertising will soar to $28 billion by 2005 — up from $4.3 billion in 1999 — but big challenges face online marketers seeking to exploit the medium’s potential, according to a new report issued by Jupiter Communications.

Those hurdles include a continued reliance on regionally-oriented media buying, a lack of adoption of innovative online ad models, and integration issues.

Although it appears that marketing — and online marketing in particular — is growing increasingly global, with opportunities for multi-national brands to craft integrated marketing plans across international markets, most marketers don’t plan that way now and most agencies aren’t organized to operate that way.

Rather than being driven by any particular innovation in online advertising, the growth predicted by Jupiter will mostly be fueled by the increase in the size of the global online population. The company predicts the number of people online will grow from 300 million users to 800 million users in 2005. In fact, the report contends that most companies are ill-prepared to take advantage of the opportunities.

“While the numbers paint a compelling picture for the Web as a global channel for advertisers, there are significant hurdles to making the Internet a superior global communication tool,” said Evan Neufeld, vice president of international research for Jupiter.

“The challenges are commensurate with the opportunities. Brands that can innovate and adapt to the increasingly fragmented media mix online and off-line, realize and overcome traditional inefficiencies in the way in which they communicate with consumers globally will become global winners, as will media companies and agencies that partner with them to achieve these ends. There will be few prizes for second place in the race to be a globally effective brand.”

Neufeld cites differences between the US and European markets as an example of how marketers have failed to adopt a global strategy. While online ad spending totaled $3.5 billion in North America in 1999, the world’s second largest market, Western Europe, got nearly nine times fewer dollars — $0.4 billion. Asia was next, with only $0.2 billion in online ad spending.

Of course, this relative lack of spending in smaller markets means there’s more growth potential. Out of all the major markets, Jupiter predicts that Latin America will experience the strongest growth rate — 68 percent.

Integration across media will also become a big issue, according to Jupiter. The company says players are already failing to integrate campaigns across existing media, and the problem will only worsen as new wireless and interactive TV platforms proliferate.

Jupiter came up with its current figures by looking at public financial filings and interviewing online ad sellers. In putting together its predictions, the company considered the following: current online penetration and usage behavior, future size of audience, Internet commerce potential, offline advertising spending, media consumption, and supply-side growth expectations.

The eAdvertising report by eMarketer came to a similar conclusion as Jupiter’s report. eMarketer projects US Web advertising spending will reach $6 billion by year-end 2000, an increase of 69 percent since year-end 1999. By 2004, the market will reach $21 billion, 3.5 times its size this year.

“Internet advertising has the potential to be the most effective form of advertising the world has ever known,” said the report’s author, Senior Analyst David Halprin. “This online trend has exceeded all analysts expectations.”

According to the eAdvertising Report, many research analysts have upwardly revised their ad revenue projections. Composite 1999 online ad revenue projections from about 15 researchers were $2.6 billion in January 1999, $3.1 billion in December 1999 and $3.6 billion in April 2000.

The report also predicts the growth rate will slow as the industry stabilizes and future trends become more established. Growth in the online market will be affected by a number of trends: Advertisers and their agencies will continue to tinker with critical issues such as measurement, standards, ROI, and privacy; Web ads will be embraced by large consumer marketing companies and attain a more strategic position within corporate marketing budgets; and online advertisers will continue to struggle to achieve a measurable return on investment.

Other findings of the eAdvertising Report include:

  • Like e-commerce and Internet penetration rates, the US share of the online ad pie is slipping. Global Web ad expenditures will rise to 18 percent by 2004.
  • The mix of online ad formats will shift in favor of new forms and technologies not yet conceived of. By the end of 2003, traditional banners will decline to 41 percent of Web ad sales, with strategic sponsorships taking 30 percent.
  • The global competition for Web advertising dollars will heat up among content providers and publishers.
  • By year-end 2000, the top 10 publisher sites accounted for 76 percent of ad dollars earned. Currently, the top 50 Web publishers generate 95 percent of all Web revenues.
  • General portal sites will capture only 34 percent of Web advertising dollars by 2004. Given the clutter of the Web and the tendency among surfers to ignore banner ads, the branding effectiveness of online advertising will continue to be questioned and scrutinized.
  • Savvy Web advertisers will exploit new techniques and technologies to drive direct response and achieve ROI.

Global Online Ad Spending, 1999-2005
US Dollars (in millions)
North America 1999 2000 2001 2002 2003 2004 2005
3,509 5,390 7,444 9,768 12,237 14,623 16,913
Western Europe 434 906 1,535 2,258 3,118 4,111 5,263
Asia 225 502 880 1,375 1,922 2,556 3,324
Latin America 52 127 240 402 628 888 1,168
New Zealand
24 74 135 208 288 373 462
Other 9 28 61 118 211 351 578
Total 4,253 7,027 10,296 14,129 18,402 22,903 27,708
Source: Jupiter Communications

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