Thursday - August 17, 2000

Online Advertising to Boom Despite Dot Com Gloom

Online advertising revenue is expected to reach $16.5 billion by 2005 according research released today by Jupiter Communications, Inc., the worldwide authority on Internet commerce. Jupiter analysts believe that the rapid growth will lead to explosion in clutter, with users receiving in excess of 950 Internet-based marketing messages per user, per day, in five years. 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's report, which was unveiled during the Jupiter Online Advertising Forum today, online ad spending will grow as businesses continue to search for a more efficient and accountable approach to marketing. "Over the past two years, we have seen overheated off-line 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 executive 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 advertising 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 propel the Internet to fourth place as an advertising medium -behind that of broadcast-TV, radio, and newspapers- it will represent almost eight 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.

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

Jupiter projects those online ad revenues to grow at a compound annual growth rate of 30 percent between 1999 and 2005. Several overarching trends will 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 off-line-particularly 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.

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