• by Shankar Gupta , January 25, 2006

Estimates of 24 percent growth in online ad spending for 2006 are likely to prove "conservative," according to a research note put out by Piper Jaffray senior analyst Safa Rashtchy.

The report cites conversations with agencies that suggest that demand for online ads is increasing among big-spending advertisers. "The agencies we spoke with indicated that they are seeing the strongest demand from the auto, finance, and entertainment verticals. Additionally, there are early signs that the healthcare/pharmaceutical advertisers are starting to move online in a much bigger way," Rashtchy wrote in the note, released this week. The analyst predicted that automakers would increase their spending on online ads between 50 and 100 percent in 2006.

In addition to increased demand for online ad inventory, Rashtchy also reported an increase in demand for Web analytics and development services. "A number of agencies suggested that the demand for increased Web development began about a year ago, and we are at the start of a new Web development cycle," Rashtchy wrote, citing the desire for increased conversion rates on retail sites and the desire for more interactivity now that broadband penetration has increased as major causes for the heightened interest.

Given these factors, Rashtchy wrote, the online ad spend could drastically outpace the current estimate of 24 percent. "Based on our recent discussions with advertisers and agencies, we believe the market could grow at 30 percent plus in 2006, especially as traditional brand advertisers increasingly shift their budgets online."