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Report: Online Ad Spending to Increase to $16.5 Billion by 2005

Despite tightening balance sheets and a bearish financial market, online advertising spending is expected to reach $16.5 billion by 2005, according to a new report from e-commerce research firm Jupiter Communications released Wednesday.

The study predicted that for the next five years, Internet advertising spending would increase at a faster rate than for any other medium. Revenues for online banner advertising, e-mail marketing, viral campaigns, affiliate networks and sponsorships, in total, will grow at a rate of 30 percent annually.

Accordingly, online ad revenues will pull ahead of those for magazine and cable television, eventually accounting for 7.5 percent of the domestic advertising market in 2005, an increase from 2 percent in 1999.

The report's creators credit several trends with helping to drive the increase in the online advertising market, including the growth in online population size, in time spent online and in Internet commerce revenues.

But the study suggests that the most important factor behind growing online ad spending comes from marketing executives' increasing need for justifiable ad spending.

"With a renewed focus on accountability and efficiency, marketers turn toward more quantifiable media, such as the Internet," said Patrick Keane, Jupiter director and senior analyst.

According to the study, many of the largest off-line spenders will continue to comprise the majority of the expected $16.5 billion spending online: financial services, automotive, computer hardware and software, travel, consumer packaged goods and media companies will be the top spenders for online advertising in 2005.

As a result of the increase in online advertising, the study suggests that dollars being spent developing traditional-media advertising will be increasingly cannibalized for use online. Print advertising media face a greater likelihood of cannibalization than broadcast media, since informational marketing -- rather than emotional -- is easily adapted for Web use.

Additionally, the report predicts that the increase in online ad spending will result in a messaging muddle, confusing consumers and forcing marketers to fine-tune their messages and their target audiences. By 2005, Jupiter predicts that Internet users will be bombarded with more than 950 Internet-based marketing messages per day, up from 440 daily impressions in 1999.

"The battle within this cluttered environment will be to capture the attention of online users," Keane said.