eMarketer: Online Ad Spending Growth To Slow

by Mark Walsh, Feb 27, 2007, 6:00 AM

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Online ad spending growth will slow to less than 19% this year after three straight years of more than 30% gains, according to a new report by market research firm eMarketer.

The study cites a maturing market and a weakening U.S. economy for the slowdown in 2007, but predicts a rebound next year to 22.1% growth in online ad dollars due to the presidential election and the summer Olympics.

Overall, eMarketer predicts that online ad spending will rise from $16.4 billion, or 5.8% of total U.S. ad spending, in 2006 to $36.5 billion, or 11.3% of total spending by 2011. While paid search will continue to claim the lion's share of online ad buys over the next several years, spending on rich media and video ad formats is expected to enjoy the fastest growth.

"As we move into the next decade, marketers will put more of their online budgets into video and other rich media categories than they do into display ads, banners and other static placements," states the eMarketer report by senior analyst David Hallerman. Spending on rich media is expected to nearly triple to $6.2 billion in 2011 from $2.1 billion this year. Paid search will roughly double during that period to $16.1 billion from $8.2 billion.

In Google's purchase of YouTube, eMarketer sees the start of a promising connection between search and video that will become a powerful combination for publishers and advertisers by decade's end.

Surveying forecasts from a group of 20 other market researchers, eMarketer finds that nearly all predict online ad spending to grow through 2011. Its own estimate of 19% growth for 2007 puts it in the middle of the pack--between JMP Securities' prediction of 25.8% and Borrell Associates' prediction of 10.2%.

At least one agency executive concurred with the more optimistic outlook of JMP and other firms. "I think we'll certainly stay in the 20% to 30% range in 2007," said Scott Symonds, executive media director at digital agency AKQA. He added that the agency's own billings are still growing at more than 30% annually, and he doesn't expect any slowdown this year. Symonds sees especially strong demand for video advertising, benefiting from the improved ability to "serve video ads with the same targeting that you can send banners."

But looking further ahead, five of the firms--Borrell, Forrester Research, JupiterResearch, Oppenheimer and PricewaterhouseCoopers--predict annual growth slipping into the single digits in the next couple of years, for the first time since the start of the commercial Internet.

Maintaining a more bullish view, eMarketer projects online ad growth to fall only to 13.4% by 2011. In defending its estimate, the firm argues that even if the economy slows, the continued growth of the online audience and attendant advertising will drive an ongoing shift away from other media, especially radio and newspapers.

The better targeting and tracking capabilities of online advertising and the expansion of Web video ads will also help increase the Internet's share of ad dollars, according to eMarketer.

In comparing 2007 forecasts for Internet advertising as a percentage of overall ad spending, however, eMarketer was more conservative than many, at 6.6%. Estimates of a dozen other firms range from 12.5% by Veronis Suhler Stevenson to 3.6% by Universal McCann. (The agency's forecast, however, doesn't include paid search ads.)

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