• by Mark Walsh  @markfwal, December 4, 2008

Add JupiterResearch to the list of forecasters paring their online ad estimates for 2008 and beyond. Even with its downward revision, however, the firm's outlook remains positively bullish compared to other dramatically reduced projections.

Trimming its forecast to account for a prolonged dip in display advertising, Jupiter predicts online advertising to grow 18.3% to $23.5 billion this year. That rate will slow to 14.8% in 2009 for a total of $27 billion. Jupiter in June had estimated growth of 19.6% and 16.1% for 2008 and 2009, respectively.

"We see marketers' overall budgets flat or shrinking, but we see online having enough to offer that marketers will continue to invest in the Web," said Emily Riley, a senior analyst at Jupiter who covers advertising.

In particular, the firm expects spending on paid search to maintain steady growth in the face of a lingering recession. As a proportion of online advertising, it is projected to grow from 45.5% in 2007 to 48.6% this year and 50.1% in 2009.

"We believe that search is going to fare pretty well in the downturn," said Riley. "We see consumers turning to search more for information on products and pricing, and so advertisers will double down on what works." She added that a category such as travel should hold up well during the downturn as people rely even more heavily on search to find airline, hotel and other bargains.

On the display side, Jupiter lowered the expected growth rate from 12% to 8% over the next couple of years, mainly due to weakness in the financial services and automotive sectors. But the firm expects a return to double-digit display growth in the next three to four years when marketers will have bigger budgets again.

Even in the near term, however, Jupiter's estimates are still far more aggressive than other online ad forecasts. Emarketer, for instance, this week slashed its growth outlook for this year from 17.4% to 11.4%, or $24.9 billion to $23.6 billion--and for 2009, from 14.5% to 8.9%, or $28.5 billion to $25.7 billion.

Citing especially hard-hit industries such as retail and auto, eMarketer cut its growth estimate for online display from 16.9% to 3.9%. Paid search, by contrast, is expected to increase 21.4% this year and 14.9% next year.

One of the reasons the Jupiter growth rates look bigger than eMarketer's is that Jupiter is starting from a smaller base in 2007. The firm estimated a total of $19.9 billion in online spending last year across display, paid search and classified advertising.

Emarketer's estimates track figures reported by the Interactive Advertising Bureau and PricewaterhouseCoopers. The IAB estimated $21.7 billion in 2007 online ad spending. So while both Jupiter and eMarketer project about $23.5 billion in online ad revenue in 2008, Jupiter's growth estimate is seven percentage points higher because it's starting from a lower total in 2007.

Jupiter's Riley said that the firm does not include ad categories such as e-mail that eMarketer or other researchers do, and is probably more conservative in estimating amounts spent on ad creative. Even so, a more optimistic outlook for search and display growth leads Jupiter to a higher dollar projection than eMarketer in 2009--$27 billion versus $25.7 billion.

Other prognosticators are even more pessimistic about next year than eMarketer. Citi last month revised its 2008 Internet ad forecast downward from 16.1% to 11.4%, and its 2009 outlook from 14.1% to 5.8%.

When it comes to local online advertising, Borrell Associates is predicting growth to nosedive from 47% this year to 8% in 2009. The local media research firm said that next year will be the first of many in which some categories of interactive advertising show little or no growth, or may even decline.

The short history of Internet advertising shows that broader economic conditions can have a dramatic impact on growth. Following the dot-com bust, online ad revenue swung from a 75% gain in 2000 to a 12% decline in 2001. Conversely, a rebounding economy lifted the category from a 16% drop in 2002 to a 21% increase in 2003, according to IAB figures.

But Riley points out that the online ad industry has grown nearly fourfold since then, and is no longer fueled mainly by endemic Web marketers. "Almost every company spending on display at that time was an Internet company, and when the bust occurred, they all went out of business," she said. "Now the Web has more to offer than many other media and isn't propped up by funny money."