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Study: Classifieds to Drive Internet Ad Growth

Online classifieds might not be the most glamorous segment of Internet advertising, but the sector is poised to be one of the engines of growth in a rebounding market, according to a new study by Jupiter Media Metrix .

According to the New York-based researcher, spending on online classified advertising grew 38 percent from 2001, rising to $1.2 billion this year. By 2007, that figure will almost double to $2.3 billion -- making it the Web ad industry's fastest-growing segment.

Jupiter attributes much of this growth to marketers' increasing shift of offline ad dollars to the Internet -- as illustrated by the 15 percent drop in traditional classified spending from 2001 to 2002.

"Although 2001 was a transitional year for online advertising, the fundamental value remains clear," said Jupiter Research Senior Analyst Marissa Gluck. "Online advertising is a strong impetus of consumer action -- including increasing traffic and sales, inspiring loyalty and promoting referrals."

Overall, Jupiter predicts that the U.S. online ad market will to grow from $6.2 billion in 2002 to $15.9 billion in 2007, a compound annual growth rate of 21 percent. In 2007, online ad spending will represent about 7 percent of total U.S. ad spending, up significantly from the approximately 2 percent market share it currently enjoys.

The firm said that trend would be driven by growth in the online population -- especially broadband users -- as well as improvement in the economic environment.

While Jupiter also expects average impression-based ad prices will drop between 2001 and 2002 -- from $2.60 to $2.50 per thousand impressions -- analysts believe media consolidation and larger-format ads will drive prices back up. Faced with decreasing amounts of online inventory, media buyers can expect average CPMs to reach $4.18 by 2007, the firm said.

"Although spending on online advertising was virtually flat between 2000 and 2001, it is faring slightly better than offline," Gluck said. "In fact, only cable fared better than the Internet, which actually bodes well for the Web as it increasingly adopts the niche-orientation of cable TV."

As with most attempts to calculate and predict industry-wide revenue, Jupiter's figures doesn't match other researchers' findings. In their most recent findings, PricewaterhouseCoopers and the Interactive Advertising Bureau, for example, found that classified ads grew from 4 percent of the industry's 2000 revenue ($184 million) to 10 percent (or $820 million) of 2001 spending.

Despite differences in precise figures, the overall trend of growth in online classifieds -- especially as compared to the decline in ad spending for the Web ad industry at large -- illustrates the rationale behind the recent showdown between TMP Worldwide's Monster and Yahoo! over recruitment site HotJobs.com, and its employment classifieds.

In addition to beating out Monster for HotJobs -- which helped to diversify its sources of ad revenue beyond the usual online media types -- Yahoo! also has taken steps in recent months to beef up other areas of its classified advertising. Last week, for instance, the firm added new ad payment plans and enhancements to its Yahoo! Autos site.