Thursday, January 25, 2001

Online Advertising Will Rise To $42 Billion By 2005

Decreasing dot-com spending will only temporarily pause online marketing's growth. According to a new Report from Forrester Research, Inc., traditional US companies using digital marketing -- multifaceted marketing campaigns which integrate online advertising, promotions, and email strategies -- will spend $63 billion on it annually by 2005. Online advertising alone will rise to $42 billion worldwide in the same time frame.

"Online advertising's current swoon won't last," according to Jim Nail, senior analyst at Forrester. "The dot-com tide has begun to ebb -- while dot-coms accounted for 69% of digital marketing in 2000, by 2005, traditional advertisers will embrace it, driving 84% of digital marketing. But the recovery won't begin until marketers master integrated digital marketing techniques."

As traditional advertisers learn that online advertising is just the first stage of a campaign, they will augment budgets for later-cycle activities like promotions and email, boosting US digital marketing from $11 billion in 2000 to $63 billion in 2005 -- representing 12% of all marketing dollars. Luring customers along the marketing cycle with targeted offers will propel the growth of promotions 42% annually, and more than $6 billion will be spent on email marketing in 2005.

Traditional advertisers will embrace digital marketing in three waves. The early movers -- companies that started advertising online before 1999 and include sellers of highly considered products or services like autos and financial services -- accounted for 16% of offline marketing in 2000. But because they plan to shift 25% of the overall marketing budget online over the next five years, they will represent 32% of all digital marketing spending by 2005.

Mainstream advertisers -- such as Daimler Chrysler -- have hung back and waited to see how the market develops. As increased spending by their early adopting competitors becomes evident, these companies will begin to market online in 2002. Because mainstream advertisers are slow to the market, they will spend only 10% of their marketing budgets online. However, 10% of their vast marketing will still equal 41% of all digital marketing by 2005.

Manufactures of low-consideration products, such as soft drinks and household cleaners, began dabbling online in 2000 and will start to take the Net more seriously in 2002. With their online budgets representing a lower percentage of the total marketing budget, this group will account for only 11% of digital marketing in 2005.

While digital marketing takes hold in the US, the rest of the world will not experience the eclipse of online advertising for another 18 months. Thus, on a worldwide basis, Forrester looked at online advertising on its own and found that while regions outside of North America represented only 16% of overall online advertising in 2000, that number will grow to 27% of the $42 billion worldwide online advertising market in 2005.

European online advertising will grow ninefold to $6 billion by 2005. Consumer eCommerce will drive the European online advertising market as it balloons from €8.5 billion to €174 billion in 2005. But high access charges, lower technology adoption rates, and lower overall per capita ad spending all stem the growth of online advertising when compared with the US.

Asia-Pacific online ad spending will rise to $4.5 billion in 2005 -- while Japan and Australia continue to power 80% of the region's advertising market. But growing technology penetration in countries with healthy traditional advertising markets will fuel the region's growth.

In 2000, Latin America was frenzied with a flood of foreign investment, the spread of free ISPs, and the emergence of dot-com entrepreneurs, which set off a temporary Internet boom. However, despite the dot-com meltdown, online ad spending in Latin America will continue to grow to $1.2 billion by 2005.

For the Report "Online Advertising Eclipsed," Forrester surveyed 59 marketers and found that online marketing per company will rise from $550,000 this year to $1 million in 2003.

New Revenue Opportunity For Portals and ISPs
Promotional e-mail delivery will emerge over the next two years as a new revenue stream for large portals, ISPs and Web-mail providers as they exert greater control over e-mail passed between marketers and consumers, according to a new report released today by Jupiter Research, a worldwide authority on Internet commerce. As e-mail marketing proliferates, Jupiter projects that ISPs and e-mail service providers will have approximately 5.6 billion e-mail messages cross their networks for each one million subscribers by 2005. Additionally, Jupiter predicts that advertisers will send 268 billion e-mail messages in 2005 - 22 times the number of promotional marketing e-mails sent in 2000.

"Internet e-mail service providers control a crucial chokepoint between marketers and the millions of consumers they want to reach. As they restrict access to a user's primary inbox and monetize the delivery of promotional e-mail, advertisers looking to reach consumers online must prepare to pay a premium," said Christopher Todd, analyst at Jupiter Research. "Although shortsighted marketers will view this as extortion, savvy marketers will recognize it as an opportunity to distance their messages from existing inbox clutter. Large portals, ISPs and other organizations that have a sizable e-mail subscriber base will see it as a significant opportunity to generate additional revenue."

Expect Delivery Tiers to Emerge for Marketing-Related E-mail
Jupiter believes that the current free delivery of promotional e-mail will evolve into a tier-based scenario that forces marketers to refine and focus their e-mail strategies:

- Top Tier -- Profiled delivery into the primary inbox based on individual usage behavior (i.e. time of day)
- Second Tier -- Enhanced delivery into the primary inbox with enhanced fonts and icons to break through clutter
- Third Tier -- Standard delivery direct to the primary inbox for marketers that compensate for access and for all personal or one-to-one e-mail messages
- Bottom Tier -- Bulk delivery into a promotional "bulk" e-mail inbox (no fee)

" On the consumer side, this may be end of SPAM as we know it," Todd said. "Consumer e-mail users will adopt and accept new delivery tiers as they realize increased efficacy within their primary inbox."

For direct access to the user's primary inbox, Jupiter advises marketers to take the following steps:

1) Factor costs of promotional e-mail delivery into future e-mail marketing budget planning.
2) Establish strategic partnerships with major Internet e-mail providers to secure enhanced delivery of promotional e-mails as the tier-based scenario evolves.
3) Include e-mail delivery as a primary component of anchor tenancy or exclusivity agreements with major portals and ISPs.

News Tidbits (appears every day on the front page)
- Here's a move to watch. Amazon.com is about to start forcing sellers on its auction sites to use the company's proprietary payment system on all auctions. In addition, Amazon.com is going to start charging sellers a fee for this service! The move could either alienate sellers and make a small auction service even smaller or it can win acclaim from buyers - particularly those that like the 1-click payment system, resulting in more bids.

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