Report: Digital Advertising Set for Rebound

Although the Internet advertising industry has fallen victim to the belt-tightening measures of many dot-coms looking to trim their operating budgets in recent months, a report released Thursday finds the spending slump is only a "temporary pause" in the market's overall growth.

According to Forrester Research, traditional U.S. companies will funnel US$63 billion annually by 2005 to support digital marketing campaigns which integrate online advertising, promotions and e-mail strategies, compared to the $11 billion spent last year.

Moreover, spending on Web-based advertising alone will climb to $42 billion worldwide within the next five years, the study said, while e-mail marketing will account for more than $6 billion during the same time.

As part of its report, "Online Advertising Eclipsed," Forrester surveyed 59 vendors and found that online marketing per company will nearly double from $550,000 this year to $1 million in 2003.

"Online advertising's current swoon won't last," said Forrester analyst Jim Nail. "The dot-com tide has begun to ebb."

Although dot-com firms accounted for 69 percent of online marketing campaigns last year, their dominance is on the wane, Nail said. By 2005, he estimates, traditional advertisers will be driving an overwhelming 84 percent of digital marketing.

Acceptance in Waves

Forrester predicts that traditional advertisers will begin to employ digital marketing in three separate waves.

The "early movers," firms that began advertising on the Internet prior to 1999 -- including sellers of products or services such as autos or financial services -- accounted for 16 percent of offline marketing in 2000. Over the next few years, however, these companies will shift a quarter of their overall marketing budget online and will represent nearly a third of total digital marketing spending by 2005.

Although many mainstream advertisers have taken a wait-and-see approach to the market, such companies will begin to market online in 2002 as the increased spending by their early-adopting competitors becomes evident. While they will only spend about 10 percent of their marketing budgets on digital promotion, they will still represent nearly a third of all Internet marketing spending by 2005.

Mass manufactures of low-cost goods such as soft drinks and household products will have far less impact on the industry, the report said. Having begun to test the online waters last year, these firms will start to take the Net more seriously in 2002. Since their online budgets will claim a smaller stake of their total marketing spending, this group will account for 11 percent of digital marketing in the next five years.

Global Impact

While digital promotions will gain a foothold domestically, Forrester said global markets will not experience the eclipse of online advertising for another 18 months.

For instance, regions outside of North America represented just 16 percent of overall online advertising in 2000. By 2005, though, that number is expected to increase to 27 percent.

Although European online advertising will claim the largest spending share -- growing nine-fold to $6 billion in four years -- the market will not see the growth rates experienced in the U.S. due to high access charges, lower technology adoption rates and lower overall per capita ad spending.

The Asia-Pacific region will spend $4.5 billion on Internet ads in 2005, Forrester projects, with Japan and Australia fueling 80 percent of the area's advertising market. In Latin America, online ad spending will increase to $1.2 billion.

Industry Resurgence

The Forrester report is not the only study that sees a slow resurgence for the Net ad industry.

Earlier this week, data from AdRelevance found that online ad impressions are currently experiencing an across-the-board increase, climbing 21 percent in December from the previous month to reach a record high of over 65 billion ads viewed.