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Slow, Steady Ad Growth Predicted For 2004

Internet advertising analysts are upbeat about prospects for 2004, but they're not indulging in the "irrational exuberance" that characterized the dotcom boom.

Rather, they predict a slow and steady rate of growth. Smith Barney CFA Lanny Baker last month predicted a 20 to 25 percent increase in expenditures. Other forecasts fall within that range.

"In 2003, we see online ad spend at $6.3 billion total, increasing to $7.6 billion in 2004, about 21 percent," said Nate Elliott, an associate analyst at Jupiter Research, owned by Jupitermedia, which also owns this publication.

"We see 2003 as a rebound year," Elliott observed. "What we'll see in 2004 is an extension of that and overall even better growth. Online advertising markets grew 10 percent in 2003."

While Jupiter's figures are based on the entire market, a market subset may experience 2004 as a second, more moderate, wave in a surge that already occurred. A poll of 26 members of the Online Publishers Association (OPA) showed the members' ad revenue in the third quarter of 2003 jumped about 46 percent over that same period in 2002. For this handful of leading publishers, 2004's 20 percent growth may seem even mellower than it will to others in the industry.

Elliott believes the big story for 2004 is that online marketing is starting to split into direct marketing and branding.

"Direct marketing opportunities include paid search. Branding opportunities include rich and streaming media ads, such as the :30 video ads Doritos runs on Launch.com," Elliott commented.

At least one prominent industry figure agrees.

Greg Stuart, CEO of the Interactive Advertising Bureau (IAB), observed, "Traditional, offline advertising typically has two components, direct marketing and branding, and that's happening online now. Direct mail, which is the sweet spot of direct marketing, is a $50 billion per year industry and they're not going to put that into junk mail any more. I mean, who opens junk mail? And telemarketing just got crucified with the Do-Not-Call list."

"So at the very simplest, broad-stroke level, we will continue to see gains in search as direct marketers continue to invest in it," Stuart said. "The over-$250 billion ad business in the U.S. is half direct marketers and half brand advertisers. We just have to see the brand guys jump to it. That will either happen this coming year or the next."

Most industry professional laud the performance of paid search, both in 2003 and the year to come.

"Search soars, rich media rises," trumpeted the OPA, describing the two ad vehicles as "the one-two punch of online advertising in 2003." The two entities, especially paid search, will continue to drive the advertising recovery in 2004, industry observers predict.

Smith Barney's Baker believes paid search revenue will grow 35 to 40 percent in 2004, propelling more than a doubling in industry growth in 2004 as opposed to 2003.

"We predicted that paid search would grow 50 percent in 2003, to $1.6 billion, and we feel pretty good about the numbers we put out, though we have not yet gone back and checked them. We see paid search going up to $2.1 billion in 2004," Jupiter's Elliott said. He predicts rich media, 11 percent of the total ad spend in 2003, will rise to 15 percent of ad spend in 2004.

Traditional markets will at last help power online ad spending, according to Elliott. "Offline companies and traditional advertisers are definitely warming up to online advertising. Search appeals to small businesses. We don't have specific numbers, but it's clear traditional markets are a large part of the growth we're seeing," Elliott said.