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

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

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

News Around the Web