Research Shows '07 To Be Epochal For Internet Ad Spending

Market researcher eMarketer has trimmed its U.S. online ad forecast to $21.4 billion* from $21.7 billion for 2008 because of the credit market turmoil and a shift toward unpaid marketing online.

Despite the slowdown, the migration of ad dollars from traditional media to the Internet continues to accelerate as even the largest advertisers increase online spending, according to a new eMarketer report released Wednesday.

The study cited research from TNS Media Intelligence showing that the top 100 advertisers spent $230 million less in 2006 than 2005 on the top four traditional media categories--television, radio, magazines and newspapers. At the same time, they increased online spending by $558 million. (The TNS figures exclude search marketing, which accounts for 40% of Internet ad revenue.)

Internet ad spending by American Express, for example, jumped by 180%, while its total ad spending dropped by 13.1%. Recently, eMarketer issued a separate report predicting that Internet ad spending would overtake radio for the first time this year. "Epochal is not a word to be thrown around lightly," says David Hallerman, the report's author and eMarketer senior analyst. "Even so, one could cite 2007 as an epochal year for Internet spending in the U.S."



The firm expects online advertising to nearly double, from 7.4% of total media spending in 2007 to 13.3% by 2011, or more than one in 10 of every ad dollar.

The heady predictions for online advertising in the study are qualified by noting the conservative approach big advertisers still take to the Internet. "Major advertisers still overwhelmingly prefer conventional media, even as they slowly shift away from it," writes Hallerman. Among the top 100 advertisers, online ad budgets increased to only 3.1% from 1.2% in 2002.

For the last quarter of 2007, eMarketer estimates advertisers will earmark a record $6 billion for Internet ads. But the firm shaved its forecast for the year by $300,000 because of the impact felt online from the sub-prime mortgage meltdown.

The report also pointed to other factors including the rise of non-traditional marketing tools online--such as e-mail marketing and viral marketing--at the expense of standard media buys. *Editor's note: This has been amended post publication.

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