Originally Published: September 2004
While portions of the economy are still a bit slow to recover from the recent economic downturn, online marketing is one area that has completed its recovery. Online ad spending has been on an upward trend since 2003 and future projections are very positive.
According to the Millward Brown Marketing & Media Snapshot, 56% of top marketers said their total online marketing and media budgets increased in 2004 over 2003. In addition, 60% said they expect their budgets to increase even more in 2005. In the researcher’s survey of 300 senior-level marketing executives, they also discovered that “online marketing was seen as the most effective medium for acquiring and retaining customers and in offering efficiency”. This efficiency is being noticed by more and more marketing executives, and many researchers partially attribute the explosive growth in online spending to the efficiency of the medium.
Two other researchers, Jupiter Research and eMarketer, agree that online spending will continue to increase. Jupiter Research reports that online advertising spending will reach $8.4 billion in 2004 and will increase 144% over the next five years, reaching $16.1 billion in 2009. Jupiter Research Senior Analyst Gary Stein predicts that online ad spending will be about even with magazine ad spending by 2008 and by 2009, “it’s going to pull ahead”. eMarketer predicts even better numbers for 2004. They estimate that online spending could reach $9.1 billion, a 25% increase over 2003. And, they predict online ad spending could increase at a rate of 20 percent or greater per annum over the next several years.
The Interactive Advertising Bureau has also released a glowing report about the state of online advertising spending. According to their data, in 2003, online advertising grew 21% over 2002, reaching $7.3 billion. Their report broke down the different areas of online ad spending:
- Keyword Search made up 35% of online ad revenue in 2003 vs. 15% in 2002
- Classified Ads made up 17% of online ad revenue in 2003 vs. 15% in 2002
- Rich Media made up 8% of online ad revenue in 2003 vs. 5% in 2002
- Banner Advertising made up 21% of online ad revenue in 2003 vs. 29% in 2002
The downturn in banner advertising can be tied directly to marketers’ realization that other forms of online advertising, including targeted pay-per-inclusion programs, can lead to a better return on investment. The percentage breakdown of these methods of online advertising should continue along the same path in 2004, with keyword search maintaining the strongest growth area. In fact, Jupiter Research reports that paid search is projected to grow at a compound annual rate of 30% over the next two years, while display and online classified ads are projected to grow more than 25%.
While these researchers have used primary and secondary research to project online spending, another good measuring stick is the success of the major portals: Yahoo!, MSN and AOL. According to eMarketer, these three portals make up almost a third of all online advertising spending, with Yahoo! being the leader. As such, many look to Yahoo! as a major indicator of the state of online advertising. Over the first half of 2004, Yahoo! has reported growth of 224.1% over last year. Yahoo!’s first quarter marketing services revenue showed a year over year increase of 234.5%, and the company’s second quarter revenue showed a growth of 215.1% over last year’s second quarter revenue. If this is truly an accurate picture of the overall state of online ad spending, as many industry experts believe, the industry as a whole is or will be seeing tremendous growth.
Like any other industry, each expert source has its own opinion as to the current and projected rate of online ad growth. But one thing is certain; all of the experts predict a rise in spending for the foreseeable future. Forecasters attribute this growth to the increasing spread of broadband, the surge in pay-per-click, the rising use of rich media and most importantly, the realization of the efficiencies of online marketing. Many companies are finding that the per customer acquisition cost for online marketing is much lower when compared to the high cost of reaching the same customer through traditional media, such as newspapers, magazines and television. Basically, marketers are recognizing that it’s cheaper to capture customers online than on the street.
While the online advertising industry is growing, some of the growth is at the expense of traditional advertising outlets. Some companies are increasing their overall marketing budgets and allocating those dollars online, but many companies are simply shifting ad budgets away from traditional media to online advertising. So, their overall budgets aren’t growing, just the dollars allocated to online opportunities.
Overall, the future of online advertising looks very positive, as more and more companies realize the need to take advantage of online advertising as part of their overall marketing program. While the awareness of online advertising’s effectiveness grows, online advertising as a whole is still a rather small part of overall advertising spending. But, it soon could overtake such historically stalwart media as broadcast and magazine advertising due to its recorded efficiencies as well as its tracking capabilities. Online advertising continues to trend dramatically upward. Is your company taking full advantage of this new technology?
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