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Report: $33 Billion in Online Advertising by 2004

A report to be issued next week says that online advertising is expected to reach $33 billion by 2004, one-third of which will be spent outside of the United States.

Despite cries that online ads don't work, spending for Internet advertising will continue to grow at a furious pace, according to Forrester Research, author of the report. The increase in spending will come from several sources, including the reallocation of dollars from traditional media.

"Spending for online advertising is being driven by a self-perpetuating cycle," said Charlene Li, senior analyst in New Media Research at Forrester.

"As the online audience continues to grow and e-commerce accelerates, more and more marketing dollars will be drawn to the Web. These trends will be enhanced by the arrival of new technologies that improve the accountability of Web advertising."

Forrester projects that U.S. online ad spending will grow from $2.8 billion to $22 billion by 2004. This figure represents 8.1 percent of projected expenditures for traditional advertising -- exceeding magazine, yellow pages, and radio spending.

The compound annual growth rate for Web advertising will be 51 percent over the next five years, roughly tracking the growth of online retail., the report predicts. Meanwhile, higher consumer usage of the Web will create excess ad inventory, lowering CPM rates and making Web advertising more cost-effective and accessible to new marketers.

With new ROI tracking tools and plenty of ad inventory available, marketers Will increasingly demand performance-based deals. By 2004, Forrester predicts that 53 percent of US online ad spending will be based on performance.

Outside the US, online ad spending is predicted to increase from $502 million in 1999 to $10.8 billion in 2004. In Europe, the report says, online ad spending will total $5.5 billion in 2004, representing 5.1 percent of Europe's ad spending. The Asia/Pacific nations will spend an additional $3.3 billion, representing 5.9 percent of traditional ad spending in the region. Latin America will grow to $1.6 billion in 2004, or 11 percent. of regional spending.

For the report, "Internet Advertising Skyrockets," Forrester drew upon interviews with 50 online and off-line marketers, publicly reported revenues of Internet companies, and Forrester Technographics data about consumers' online usage.