• by Erik Sass  @eriksass1, October 9, 2006

Only about 16 percent of marketing budgets will be devoted to online marketing this year--including e-mail campaigns, Internet ads and Web media spending--according to a new report by Blackfriars Communications, a consulting firm that conducts quarterly surveys of around 300 senior executives about their marketing budgets.

That proportion marks a significant drop from the 23 percent share executives forecast at the beginning of the year. Online advertising, in particular, has seen its share of the total marketing budget shrink from a predicted 11 percent to 7 percent--or about $38 billion. At the same time, offline advertising has risen from a projected 13 percent of total marketing budgets at the beginning of the year to about 29 percent of actual allocations now.

Overall, ad budgets have fallen by 11 percent in 2006 compared to last year, according to Blackfriars. Carl Howe, Blackfriars' principal, is forecasting a $218 billion total ad spend by the end of 2006--down from about $245 billion in 2005.

Including advertising, Blackfriars says overall marketing budgets have declined precipitously, dropping from $977 billion in 2005 to a forecasted $615 billion in 2006. This projected expenditure for 2006 is also down significantly from optimistic forecasts at the beginning of the year, predicting $1 trillion in marketing expenditures.

What accounts for the drop? Although Blackfriars hasn't completed a chronological review of budget reductions by its survey respondents, Howe says there is a large amount of anecdotal evidence from interviews--suggesting that fuel prices, the war in Iraq, and two devastating hurricanes at the end of 2005 have strained corporate budgets. As a result, marketers are forced to do more with less.

Howe said that slashing Web spending, in particular, may prove unwise--because Internet advertising promises more accountability and transparency in ROI calculations. This, in turn, allows marketers to demonstrate the value of their discipline to higher-ups--especially important considering that the average tenure of CMOs continues to fall.