Ad Spending to Rebound, Digital Marketing to Soar

Jupiter Media Metrix has spotted a light at the end of the online advertising tunnel. But what comes out when the market emerges will be part digital marketing, part Internet advertising.

According to Jupiter, online ad spending in the United States will increase only 5 percent in 2001, but it will rebound and grow at a compound rate of 22 percent over the next five years — reaching a total of more than $15 billion by 2006. But during the same time period, Jupiter predicts that spending on digital marketing initiatives such as coupons, promotions and e-mail will surpass that of advertising and
reach more than $19 billion during the same time period. According to Jupiter analysts, Web publishers must diversify advertising opportunities or risk losing money to these other online marketing initiatives.

“Marketers’ inability to evaluate online advertising effectively has lead to the current hiccup in spending,” said Marissa Gluck, senior analyst for Jupiter Media Metrix. “Online advertising, when fully measured, remains a strong impetus of consumer action — including increasing traffic and sales, inspiring loyalty and promoting referrals. While reduced financial resources is still a key factor inhibiting the growth of online advertising, the primary online advertising industry stimuli are still around and will be.”

According to the Jupiter’s Internet Advertising Model, online advertising will account for 7 percent of the total advertising market in 2006, up from 3 percent in 2001. This growth is natural, Jupiter analysts say, because marketers will follow the eyeballs as the Web audience continues to grow. Among the catalysts for growth in consumer eyeballs to the Internet: increasing use of consumer Internet services; technology
improvements that result in more fulfilling online user experiences; increasing number of experienced online users; and Internet-driven business-cost savings. These consumer-driven trends will be the primary drivers of traditional brand advertisers to the Web, according to Jupiter analysts.

Digital Marketing/Advertising Spending
Year Online
2000 $5.4 $1.5
2001 $5.7 $2.0
2002 $6.8 $3.7
2003 $8.6 $6.2
2004 $10.6 $9.5
2005 $12.9 $13.8
2006 $15.4 $19.3
Source: Jupiter Media Metrix

Traditional advertisers still present the greatest opportunity to struggling online ad sellers. But Jupiter found that many of the largest offline ad spenders, particularly those that sell high-consideration,
information-intensive products, will also make up the bulk of online spending in the next five years. Financial services companies will account for the most online ad spending by 2006 — a total of $2.1 billion. Automotive and media companies will be the next largest online ad spenders, accounting for $2
billion and $1.6 billion, respectively.

The news is not so bullish for pay-per-performance advertising, which will experience only slow growth over the next five years. The Jupiter Internet Advertising Model shows that pay-per-performance spending will account for just 22 percent of all online ad spending in 2001 and will only increase to 30 percent by 2006. Jupiter analysts warn that the CPM model is not dead and advise that the misuse of pay-per-performance will result in its return as publishers fail to meet advertiser demand.

“Currently, the online advertising industry is more mature than digital marketing initiatives such as sweepstakes, coupons and promotions,” Gluck said. “However, as marketers demand a greater impact from their online investment, publishers risk losing dollars to marketing initiatives that don’t require their involvement, such as online contests, movies and games. Publishers must find ways to diversify their offerings to become more appealing to advertisers and should explore types of integrated relationships that focus on product and consumer rewards.”

The Jupiter Media Metrix findings that digital marketing initiatives will become an increasing part of online budgets echo the sentiment of research released by Forrester Research in January of 2001. Forrester predicted that by 2005, traditional U.S. companies will spend $63 billion annually on digital marketing, which it defined as multifaceted marketing campaigns that integrate online advertising, promotions and e-mail strategies. While dot-coms accounted for 69 percent of digital marketing in 2000, by 2005 Forrester expects traditional advertisers will embrace it, driving 84 percent of digital marketing.

Jupiter Media Metrix also partnered with online ad network 24/7 Media to conduct a survey of more than 500 Internet marketing decision makers in the United States and Canada to gain insight into their perceptions of the value of online marketing.

Preliminary results of the research found that marketing managers with more than six years of experience were more optimistic about the future of the online industry than their more junior colleagues, and more tenured managers anticipate a greater growth of online marketing budgets in 2001. The findings also suggest that interactive marketing has matured from a testing or “trial by error” phase into a building phase where decision makers grow budgets based on past campaign successes. More than two-thirds of the respondents expect to increase their online budgets over the next 12 months.

News Around the Web