With the ad industry ending the year on a positive note, many industry forecasts predicted a rosier 2003. According to eMarketer, the online advertising industry will grow by 6.3 percent next year, after two years of double-digit contraction.
Of course, the online advertising industry’s recovery depends on growth in the overall advertising industry, which in turn is dependent on the U.S. economy. With war in Iraq threatening to throw the economy off track, most forecasters say that any recovery is fragile.
Interactive marketing has issues of its own to face in the coming year, too, if it’s ever to become an integral part of the media mix, and advertisers are to depend on online as a meaningful element in their campaigns.
One of the first challenges is to make the effectiveness of online advertising apparent for agencies and advertisers. The Interactive Advertising Bureau (IAB) has put this at the top of its agenda for 2003, continuing the work started in 2002 with the cross-media optimization study.
In 2003, IAB has commitments from top advertisers such as McDonald’s, Kimberly Clark, and Palmolive to participate in case studies examining the effect of bumping up the online component in an integrated marketing plan. Additionally, the trade group, along with MSN, plans to continue to develop best practices, so advertisers have concrete examples of the best ways to get returns on their online marketing dollars.
“We need to tell buyers how to allocate for different media,” said Greg Stuart, head of the IAB. “It’s giving them the data for the tools they already use.”
Another area Stuart has pegged for progress is the development of reach and frequency guidelines. With reach and frequency figures, interactive advertising can talk to agencies and advertisers in a language they already understand, instead of presenting interactive as separate from other forms of advertising.
“Most of the issues have been worked out,” he said. “It’s an adoption and refinement issue at this point.”
Rich Media and the Shrinking CPM
While the online ad industry sold more inventory in 2002, publishers fought against shrinking CPMs. CPM rates fell 21 percent in 2002, according to Jupiter Research, which is owned by the parent company of this site. Next year, Jupiter says, the industry will begin to make inroads into stemming the decline through better targeting and the increased use of rich media, with average CPM declining 5 percent before beginning to rebound in the following years.
Jupiter credits rich media’s larger role in the online ad mix as a chief reason for the bottoming out of CPM decline. The researchers estimate rich media ads will account for 8 percent of ad spending in 2003, as conventional online advertising forms, such as the banner ad, begin to lose market share.
Moreover, traditional advertisers, the keys to growing the online advertising industry, are intrigued by rich media ads, according to eMarketer analyst David Hallerman.
“[Rich media’s] use for branding is something that’s drawing in the larger companies,” he said. “Some content sites are finding they can charge more. It’s one way that both the advertiser and the publisher see potential benefits.”
Rich media prevalence will be helped by the fact that the three biggest portals — AOL, MSN and Yahoo! — rolled out third-party rich-media capabilities from industry leaders like Eyeblaster, Unicast and Bluestreak.
Paid Search Battle
This year should also feature the continuing evolution of the hottest sector of the online advertising industry: paid search. The largest player in the space, Overture, expects to record as much as $925 million in revenue next year, as paid listings continue to grow in popularity.
“Search engine marketing should keep increasing more,” Hallerman said. “It’s one of the perfect targeted vehicles for Internet advertising. Up to now it’s been a lot of smaller to midsize companies doing it, but larger companies are beginning to see the benefits of it.”
Overture will again need to deal with a challenge to its supremacy from Google, which last year entered the paid listings market after establishing its algorithmic search technology as the de facto industry standard. However, after early setbacks in losing contracts with AOL and EarthLink, Overture has continued to sew up top sites in both the U.S. and in nascent international markets.
Now, with Yahoo! scooping up Inktomi, Google faces the prospect of fighting Overture on the paid-listings front while other top portals possibly follow Yahoo!’s lead and look to develop their own search technologies to replace Google’s algorithmic search.
Getting Its Due
The IAB’s Stuart said the coming year would continue the industry’s transformation, after the turbulent past few years.
“Online is finally getting its due,” he said. “We’ve let go of some of the baggage of the past. It had been so over-hyped that there was a boomerang reaction to that.”