Unless you've been unplugged for the last 10 days, by now you know the IAB finally released its 2004 Internet Advertising Revenue Report. Most news outlets zeroed in on the $9.6 billion total, the 33 percent annual growth rate, and the fact that we finally beat the $8.1 billion record set in 2000.
The IAB tracks five categories of spending: display advertising, search, classifieds, e-mail, and referrals. Classified advertising is dominated by employment and auction sites, not exactly the mainstay of a typical media plan. I've chosen to ignore classifieds for this reason. What's left can be simplified into search advertising and branded advertising. Viewed in this way, spending is almost perfectly split 49:51, with branded advertising holding the slight advantage.
It should come as no surprise that search advertising remains the juggernaut. It grew 51 percent from $2.5 billion in 2003 to $3.9 billion in 2004. Net of classifieds, search got 49 cents of every online advertising dollar in 2004.
Branded advertising went from $3.5 billion in 2003 to $4 billion in 2004. Within this group, rich media was the brightest, but not the biggest star (banners still hold that distinction). Rich media revenues were up 32 percent from $727 million in 2003 to $963 million in 2004. Net of classifieds, rich media got 12 cents of every online advertising dollar in 2004.
Let's pause for a moment here. In our declassified world, search got 49 cents of last year's online budget, while rich media got 12 cents. That leaves 39 cents, almost all of which went to static banners. Do you see the madness? If not, stay with me.
Turning from the rearview, eMarketer's Rich Media at the Tipping Point gives us a sense for where rich media advertising spending might be headed. It forecasts 2008 revenues of $2.2 billion, up some 170 percent from its 2004 estimate of $808 million. Published without the benefit of the IAB's 2004 final report, eMarketer presciently notes that "these estimates may be seen as conservative."
By 2008 eMarketer estimates total online advertising revenues will hit $17.6 million; giving rich media a 13 percent share overall. My question: By 2008, why will anyone be buying anything other than rich media or search? By my reckoning, rich media should account for nearly 50 percent of online advertising by 2008.
eMarketer links rich media's growth to increased Internet penetration (67 percent of U.S. households will be online by 2008) and nearly ubiquitous broadband access (84 percent of households will have broadband). While a broadband nation helps, so do better results.
Rich media outperforms other forms of display advertising by a minimum of five to one in terms of click-through rates. Rich media has the added benefit of allowing user interaction. Nearly one out of every five impressions results in a user pulling down a menu, playing a game, or otherwise interacting with a rich media advertisement. Interaction time runs an average of 11 seconds, which is not bad in a world that's moving to 15-second television spots.
All this involvement creates brand impact. Rich media advertising creates more lift than other forms of display advertising in terms of brand awareness, message association, brand favorability, and purchase intent.
While the overall outlook for rich media is good, it certainly pales in comparison to the sheer size and growth rate of search. And given the superior performance of rich media versus other forms of display advertising, this makes no sense.
Broadband is here. Rich media works. My advice is to spend your online advertising budget on only two things: search and rich media. In other words, stop media planning, and start rich media planning.
By the way, don't give your search budget to your media planning agency. Experience signing an insertion order is meaningless when it comes to running a campaign with Google or Overture. But that's another column entirely.