Report: Global Online Ad Spending to Hit $15 Billion by 2003

Growth in the Internet-user population and the arrival of mainstream
advertisers will push global spending for online ads to more than $15 billion
in 2003, according to a new report from Forrester Research Inc.

Cambridge, MA-based Forrester estimates that U.S. spending for Internet ads will grow from $1.3 billion in 1998 to $10.5 billion in 2003. Despite this eightfold increase, the U.S. share of the worldwide market will decline from 87% in 1998 to 70% in 2003.

International ad spending will be led by Europe, where the online market is
expected to grow from $105 million in 1998 to $2.8 billion in 2003, the report
said. This spending will be pushed by an increasingly cohesive European
market, a growing Internet population, competition from U.S.-based companies
and maturing technologies.

Slowed by ongoing economic difficulties, Asian ad spending will grow to $1.25
billion in 2003. Dramatic growth in Latin America will be masked by a small
Internet population and a low starting point for ad spending, the report said.

“The Internet has arrived as an accepted advertising medium,” said Bill Bass,
director of Forrester’s Media & Technology Strategies service and co-author of
the report. “This is evidenced by the amounts that will be spent for online
ads during the next five years, as well as by the arrival of large mainstream
advertisers. The next challenge facing media companies will be developing the
revenue opportunities presented by a growing international market.”

To succeed, media companies will need the high volumes that the international
market offers to offset low online ad margins, which Forrester expects to
settle near 10%. Media companies that arrive in a market early, partnering
with local service and e-commerce providers, will gain a competitive advantage
that will be difficult to overcome later. In particular, Forrester expects the
major portal providers and service companies to play key roles in establishing
global brands.

“Traditional media companies that are late to the Internet can take advantage
of the Net’s unique dynamics by investing in global category-killers,
partnering with best-of-breed local content providers, or buying up local
resources to corner a particular category, like classified ads,” said Chris
Charron, a senior analyst and co-author of the report. “Media companies with
established tools and services should export them to gain an early share in
emerging markets.”

Interestingly, Forrester said it expects per capita spending for online ads in
the United States to bypass radio and magazine ads by 2003. Internet
advertisers will spend $25 per person in 1998–double the amount spent in
1997. By 2003, this number will grow to $104 per person, roughly one-third of
per capita spending for television ads but slightly ahead of magazine and
radio spending.

The report, entitled “Media’s Global Future,” is based on interviews with
major advertisers, advertising agencies, and media companies in Asia, Europe,
and North America.

Forrester is an independent research firm that helps its clients assess the
effects of technology on their businesses.

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