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Online Ads to Recover (a Bit) in 2003

NEW YORK -- The good news from Jupiter Research: Online ad spending will more than double. The bad news: It won't happen for five years.

Following up on the sluggish second-quarter revenue report from the Interactive Advertising Bureau (IAB) yesterday, Jupiter said online ad spending would remain flat this year, while growing by 10 percent in 2003. In large part, a recovering economy and low ad prices will encourage advertisers to increase their spending on Web ads.

McDonald's will be one such company. After earlier reporting the success of its Internet ad campaign for a new chicken sandwich, the company's director of Internet marketing, Neil Perry, told the IAB/Jupiter Advertising Forum on Tuesday that the Golden Arches would spend 50 percent more on its online ad spending next year. Currently, McDonald's devotes 1 percent of its total ad budget to online.

"Given the current economy, online ad spending understandably saw a year of virtually no growth, but the industry is in recovery mode," said Jupiter Research Analyst Patrick Keane. (Jupiter Research is a unit of Jupitermedia Corp., the parent of this Web site.)

In the near term, Keane expects CPM rates to remain low. "This is a buyer's market," he said, "and that's not changing much at all."

An especially bright spot is the online classifieds sector, which make up the overwhelming majority of local online ad spending -- representing 91 percent of the $1.2 billion spent on regionally-targeted ads in 2002.

Jupiter forecasts the segment to grow 16 percent, reaching $1.4 billion in 2003. Job recruitment and even matchmaking ads are expected to be some of the major drivers.

In spite of some well-performing areas, Keane said convincing traditional advertisers like McDonald's to increase their online ad spending remains difficult.

One reason is that most marketers remain behind the curve in understanding the usefulness of online ads. Keane pointed to Jupiter research indicating that 67 percent of marketing departments still use click-throughs as a legitimate measuring stick of the performance of their online ads -- a practice that many Web advertising insiders believe ignores the longer-term branding effects of the medium.

Just 35 percent of marketers take the effort to track branding and predictive behavior, Keane said.