Report Predicts Online Advertising Poised To Explode

As the business of buying and selling in cyberspace continues to mature, online companies are also adjusting their advertising and marketing strategies to lure increasingly savvy buyers. Companies will not stop buying online ads, a new report from Forrester Research Inc. (Nasdaq: FORR) says, but they will base their decisions more directly on the results those ads garner.

At the same time, one new advertising company is urging advertisers not to ignore the value of traditional media for promoting online products, services and Web sites., a Charlotte, North Carolina, print advertising company, argues consumers continue to look at ad inserts in their Sunday newspapers for product information. has developed an offline guide for online consumers, which it plans to distribute this fall in Sunday newspapers and USA Today. The four-color, glossy guidebook will be delivered biweekly to 20 million consumers, starting October 15th.

The company is encouraging online merchants to use the circular as traditional advertisers do, by including product and service information, coupons, rebates, sweepstakes, discounts and trial offers — to lure readers to their Web sites. “This new marketing medium is filling a growing void faced by online businesses lost in the vastness of cyberspace,” says.

Burgeoning Online Marketing

Charlene Li, the company’s senior analyst in New Media Research, said that the growth of online ad revenues is inevitable, given every indication that the Internet user population will only get larger with time.

“Spending for online advertising is being driven by a self-perpetuating cycle,” said Li. “As the online audience continues to grow and e-commerce accelerates, more and more marketing dollars will be drawn to the Web. These trends will be enhanced by the arrival of new technologies that improve the accountability of Web advertising.

Diversified Strategies

Diversified advertising strategies will be the key to effective marketing as the online business becomes more competitive, argues. Forrester ‘s study, however, remains bullish on the power of online ads over the next five years. Although increased ad spending would seem to give content sites leverage in the ad selling process, page view growth will far outpace ad spending growth, the researcher says.

“With new [return-on-investment] tracking tools and plenty of ad inventory available, marketers will increasingly demand performance-based deals,” Forrester says, predicting 53 percent of U.S. online ad spending by 2004 will be based on performance.

By 2004, online advertising’s share of all ad spending will be larger than the shares contributed by magazines, yellow pages or radio spending, the company says. In its study, Forrester estimates global spending for online advertising will reach $33 billion (US$) by 2004, and one-third of that money will be spent outside the United States. Some ad money traditionally spent on offline avails will be reallocated to contribute to that growth, the researcher predicts.

Advertising Overseas

Outside the U.S., Forrester predicts that online advertising will reach $10.8 billion by 2004. The company said that worldwide markets would grow at a quicker rate than the U.S., primarily because they start with a smaller base and will learn from the established U.S. online industry.

Europe, it predicts, will produce $5.1 billion in ad spending by 2004, Asia/Pacific will generate $3.3 billion and Latin America online ad revenues will increase to $1.6 billion.

Forrester said the report drew upon interviews with 50 online and offline marketers, publicly reported revenues of Internet companies and the company’s data about online usage. The projections were adjusted downward to account for non-cash ad revenues like barter ads and revenue sharing.

Portrait of a Profit

Still, the report paints a rosy picture for the online industry. The company expects online advertising to take a significant bite out of traditional ad mediums, luring away $27 billion – or 10 percent of all U.S. advertising spending. It predicts that newspapers and direct-mail will be the big losers, seeing a drop-off of 18 percent in revenues by 2004.

“While all forms of traditional media will experience slower-than-expected growth, newspapers and direct mail will be the most affected,” Forrester says, predicting they will lose as much as 18 percent of their expected revenues in 2004.

The report, “Internet Advertising Skyrockets,” is based on interviews with 50 online and offline marketers, publicly reported revenues of Internet companies, and Forrester data about consumer online usage. Forrester Research, founded in 1983, is based in Cambridge, Massachusetts.

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