Is The Economic Veil Finally Lifting?

Numerous reports in recent weeks have led some news organizations to declare the recession finally over. While it may take some sectors longer to rebound than others, there are strong signs that the Internet has already begun to surge in virtually every metric from online spending to hours spent vs. other media to advertising.

Earlier this year, many analysts, including CMR and Jupiter Research, predicted a 5-8% online advertising rebound, but there are encouraging signs that this may be a low estimate. A new report from Evaliant, TNS Media Intelligence/CMR's online market research arm, finds that spending on online advertising rose to $3.2 billion during the first half of 2003, a 12.5% jump over the same time last year. This comes less than a week after the Interactive Advertising Bureau estimated an 11% year-to-year bump in first quarter revenues, to $1.7 billion.

Considering the slow start for the media economy in early 2003, along with the impact of the war, growth in new media ad spending for the second half could be even more dramatic. Of all the areas of media, the Internet is expected to see the most dramatic gains at some point as more and more marketers begin integrating the web into their overall media plans.

Three main drivers are helping to boost web ad spending after a two-year free fall:

  1. The expansion of broadband among somewhat later adopters has increased the viability of rich media ads, which are preferred by many traditional advertisers because of their likeness to television and their higher response rates. Broadband usage at home increased by 49% from May 2002 to May 2003 according to Nielsen//NetRatings, bringing the total number of at-home U.S. high-speed users to 39 million, or about 25% of online Americans. Broadband already dominates at the work place. The effect has been to create the critical mass of audience sufficient to make rich media a more viable option for those mainstream advertisers.

    Nielsen//NetRatings reports that the amount of rich media used in advertising campaigns during the first quarter more than quadrupled, to 7.9%. A DoubleClick study found that the number of rich media ads jumped from 17.3% in the first quarter to 32% in the second. Larger advertisers seem encouraged by this trend, which is coupled with a general shift in the way the Internet is being perceived.

  2. Another advertising option that has seen a big boost in the past three quarters is paid search listings. The IAB reports that paid search listings almost tripled year-to-year in the fourth quarter of 2002, to $330 million. Although recent reports indicate that search may not be the holy grail of Internet advertising, it will certainly keep growing.

  3. Finally, the increased use by many websites of sophisticated software to track user behavior. When combined with known demographic data (generally collected via registration, etc.) sites can serve more appropriate ads to user segments based on their interests. Look at the extraordinary response rates achieved by using a software program to reach visitors whose prior actions suggested a keen interest in the advertiser's message. In addition to providing contextual advertising within the automotive section of, targeted banners were delivered to customers who had visited the automotive section within the past 30 days. These ads were served when visitors returned to even if they were outside the automotive area. The response rate among the target audience was a stunning 7.7% as compared to the national average of .33%, representing an improvement of 2200%. Audience-targeted ads also doubled the number of credit applications the dealership received, and increased the number of online searches by 17%. Furthermore, the dealership reported that the campaign generated 44% of the total calls into the dealership at a time when eight promotions were running in other media.

The key ingredient in all of these trends is that advertisers can see real bottom line results. This encourages them to move from experimentation to buying online schedules with confidence. As this continues, the results will fall to our bottom lines as well.

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