• by Mark Walsh  @markfwal, January 21, 2008

Yankee Group forecasts that Internet advertising will more than double to $50.3 billion in 2011 from $21.7 billion last year, driven by technology investments that will boost online ad performance.

While the size of the U.S. Internet audience will level off in the next few years, ad dollars have yet to catch up with the growth in online media consumption, according to the Yankee study. The research firm estimates that the Internet accounts for about 20% of overall media consumption, but only 7.5% of ad budgets.

In three years, that ad share is expected to double to nearly 15%, closing the gap with television. Yankee predicts marketers will spend three-quarters as much per online user as TV viewer ($244 versus $313) by 2011. In 2006, advertisers spent less than one-third as much online as TV per user ($89 versus $276).

Helping drive the online shift will be improved ad targeting, an array of new ad platforms, and publishers' increased focus on "yield management"--maximizing revenue without upgrading ad inventory.

"We've thought of this as an industry in which advertisers are the ones in the driver's seat, but it's clear that publishers have a lot they can do as well," said Daniel Taylor, senior analyst at Yankee Group, which predicts a 24% annual growth rate for online advertising through 2011.

That means investing in new online media formats such as video, gaming and virtual worlds and creating marketer segments that go beyond just direct response and brand advertising. While more refined targeting techniques will help improve revenues, publishers also need to be mindful of users' privacy concerns.

The Yankee report likewise urges advertisers and agencies to invest in technology to automate manual internal processes and to integrate interactive budgets into mainstream planning and buying activities. "This is a technology-driven marketplace and agencies should be using technology to manage it," Taylor said.

Yankee also recommends that advertisers double online ad budgets each year and take advantage of emerging video and mobile ad opportunities. Taylor emphasized that the development of the Internet is still at an early stage--a "Wild West" landscape of nascent media and advertising models. "The reality is it takes time, and this market is just about reaching adolescence now," he said.