Classifieds Fueling Growth Of Online Ad Market

by Apr 30, 2002, 12:00 AM

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Jupiter Media Metrix today released a report which forecasts that that online classified ads will grow faster than any other form of online advertising this year in the U.S., with spending projected to increase from $1.2 billion in 2002 to $2.3 billion by 2007.

According to the report, titled "Online Advertising Through 2007: Is the Worst Over?" the strong performance of online classifieds in the overall weak market is due, in large part, to an increasing shift of offline revenues online.

"While the offline classifieds market contracted by more than 15% in 2001, online classifieds registered impressive growth, increasing 38 percent to more than one billion dollars," said Marissa Gluck, senior analyst with Jupiter Research. "Although 2001 was a transitional year for online advertising, the fundamental value remains clear. Online advertising is a strong impetus of consumer action - including increasing traffic and sales, inspiring loyalty and promoting referrals."

Despite Ad Recession, Growth Will Continue

Jupiter analysts forecast that online advertising spending in the U.S. will grow from $6.2 billion in 2002 to $15.9 billion in 2007, representing a compound annual growth rate of 21% over the next five years. Ultimately, online advertising will account for 7% of the offline ad market spending in the U.S. in the same period. Factors driving the growth include increased broadband penetration, a sustained growth of the online population, media consolidation and general economic recovery.

CPMs Expected to Gain

Despite an expected drop in effective CPM rates between 2001 and 2002, from $2.60 to $2.50, Jupiter analysts expect to see modest gains in the years ahead. Rapid online media consolidation and large format ads are beginning to leave marketers with fewer online advertising choices.

According to Jupiter analysts, this combination of media consolidation and clutter reduction will result in fewer available ad impressions, eventually creating greater equilibrium between supply and demand, and raising the average CPM. By 2007, Jupiter analysts project that the average effective CPM rate will be $4.18.

"Although spending on online advertising was virtually flat between 2000 and 2001, it is faring slightly better than offline. In fact, only cable fared better than the Internet, which actually bodes well for the Web as it increasingly adopts the niche-orientation of cable TV," Gluck said.

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