• by Mark Walsh  @markfwal, August 31, 2007

Forecasts conflict, but they agree on one thing: major growth

In projecting nearly $62 billion in Internet advertising by 2011, Veronis Suhler Stevenson got the attention of media types deep in midsummer vacation mode last month.

The media-focused private equity firm further predicted that the Internet would become the single biggest ad segment, outpacing newspapers and broadcast TV in four years.

The report offers a bullish outlook on Internet advertising, to say the least. The Interactive Advertising Bureau tallied online ad spending in 2006 at $16.9 billion, meaning the category would have to almost quadruple in four years to bear out the projection in Veronis Suhler’s annual communications industry forecast.

So, how did the firm come up with such a big number? A key reason is that Veronis Suhler and PQ Media, which helped prepare the study, don’t believe the IAB figure captures the full extent of Internet advertising. In fact, the report assumes that the IAB estimate encompasses only online national advertising — things like display and search advertising on Web portals such as Yahoo and Google.

That would mean the IAB’s $16.9 billion total leaves out local online advertising, including ads on newspaper Web sites, online Yellow Pages and local search. The Veronis survey also assumes IAB doesn’t count ad dollars tied to Web 2.0 media such as social networking sites, blogs and RSS feeds. By adding in $6.8 billion in local and social media advertising, Veronis Suhler reaches an estimate of $23.7 billion for online advertising in 2006, more than 40 percent higher than the IAB’s.

So in projecting to 2011, Veronis is already starting from a higher base figure than the IAB or most other researchers. Leo Kivijarv, head of research for PQ Media, says that the IAB data has for years had “inherent weaknesses,” including the claim that it includes local advertising.

“It's been our belief that local online ad data has been underrepresented for years, particularly if you compare the data with material published by Borrell, Kelsey and Simba, among others,” says Kivijarv, referring to research firms that cover local advertising.

The IAB, whose regular studies of Internet advertising are conducted by Pricewaterhouse-Coopers, maintains that its research encompasses all online advertising, including local and social media. “Our report continues to be the decisive Internet advertising revenue report and we do include all those pieces,” says IAB spokesperson Marla Nitke.

Unlike the Veronis Suhler study, the IAB’s annual Internet ad report doesn’t break out advertising by national and local categories but by ad formats, including search, display, classified and sponsorship.

Besides starting with a higher dollar estimate, Veronis Suhler also projects more aggressive growth rates for online advertising than those of most other forecasters. It predicts a compound annual growth rate from 2006 to 2011 of 21.2 percent. From 28.7 percent this year, Veronis has the rate gradually declining to 14.7 percent in 2011. 

A comparison of estimates by eMarketer back in March shows Veronis Suhler as among the most aggressive of some 20 investment banks and research firms.

In June, eMarketer itself released a revised forecast which projects a 21.1 percent growth from 2006 to 2011, nearly identical to Veronis Suhler’s. But since eMarketer’s dollar estimate is tied to the IAB figure of $16.9 billion in 2006, it predicts a total of only $44 billion by 2011, $18 billion less than the Veronis forecast.