Study: Web Ad Industry Facing Down Problems

Continuing the growing optimism about the future of Web advertising, new research suggests that the online ad space is coping with — and overcoming — key issues limiting its growth, according to research firm eMarketer.

During a presentation Wednesday evening with Forbes.com, eMarketer co-founder and Chief Executive Geoffrey Ramsey outlined a number of trends that boded well for the space.

For one thing, the numbers of frequent U.S. and Canadian Internet users (that is, those who log on at least once every 30 days) continue to grow. According to eMarketer findings, the two countries’ estimated 152 million Internet users will increase to 169.3 million in 2003 and 184.5 million in 2004.

Considering that steadily increasing numbers of cable networks contribute to the splintering of time consumers spend with traditional media, the trend is likely to balance out concerns about reaching mass audiences via the Internet.

At the same time, more Internet users will be subscribing to broadband at home. By the end of the year, about 17.6 million households will be broadband-enabled — a figure that will double by 2004. By 2004, online households will represent about 70 percent of the U.S., with broadband subscribers representing about half of those.

That’s another trend considered fundamental to Web advertising’s long-term success, since rich media formats are considered more effective than static ads, but are generally best suited for high-bandwidth Internet connections.

Additionally, studies by several research firms have found that Internet users skew toward the affluent, and, not surprisingly, that broadband subscribers trend toward longer Internet sessions — and thus, greater media exposure.

Other trends that prove promising include the greater number of online shoppers. eMarketer reports that 57.5 million Americans bought online in 2001, and 69 million will do so during 2002.)

Furthermore, eMarketer pointed to efforts like those of the Internet Advertising Bureau to address lingering concerns about accuracy in Web audience measurement. Ramsey also said that his firm is working with the IAB on the matter.

Ramsey also presented statistics from DoubleClick that indicated click-through rates had nearly doubled during past two years, from 0.44 percent in February 2000 to 0.83 percent in February 2002. (The ramifications of that development, while positive, remain unclear for the sector at large, since industry leaders for months have been positioning click-through rates as an ineffective measure of a branding campaign’s success.)

As a result of the trends, eMarketer also predicted that online ad spending would see double-digit increases in spending for the next several years. In a report released Thursday, the firm said Internet advertising spending would rise 11 percent to top $8.1 billion in 2002 (just shy of the Interactive Advertising Bureau’s estimated $8.2 billion in 2000).

In 2003, the industry would see spending of $9.2 billion, which eMarketer said would grow to reach $11.4 million in 2004, and $13.5 billion in 2005.

As a percentage of all media spending, eMarketer said it anticipated online media growing to 3.1 percent in 2002 (again, just shy of 2000 levels). The following year, Internet ad spending should represent 3.3 percent of total media spending, increasing to 3.8 percent and 4.3 percent in 2004 and 2005.

To put that in perspective, groups like Universal McCann project that network television will bring in 6.6 percent of total media spending during 2002, while spot TV will see about 4.3 percent of total spending.

(Both of those figures could actually be high should more optimistic estimates for the Web — such as those from eMarketer — come to pass, since Universal McCann remains relatively bearish on Internet media growth during the year.)

The good news comes amid increasing good news about a turnaround in the economy and the advertising market this year. Still, many leading, publicly traded Web advertising firms, like DoubleClick, continue to stand behind fairly conservative guidance for the year.

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