• by Geoff Ramsey , March 6, 2002

It’s generally known that any large, so-called traditional company (insert your favorite consumer packaged-goods company here) will typically spend less than 1-2% of their total advertising budget on the internet.

For these firms, the internet has usually been relegated to “experimental” budget status. But it appears this trend may now be changing.

Over a dozen researchers and investment banking firms have announced numbers defining the size and growth of the online ad industry. And while the numbers are all over the map, there is now a consensus that, despite the hiccup in spending seen in 2001, this year will mark the beginning of a steady climb upwards for online ad spending. Morgan Stanley’s sour prediction for flat growth being the notable exception.

eMarketer, which formulates its market projections based on the best fit with all of the available data, sees the online ad market growing a relatively healthy 11% in 2002, followed by even more robust growth in subsequent years, from 14.2% in 2003 to 23.2% in 2004, when iTV and broadband will start to kick in. Keep in mind, too, that eMarketer is typically conservative when it comes to forecasting growth about the internet, and online advertising in particular. Many predictions from other industry watchers are more optimistic.

But what’s behind this growth? How can we be so sure that advertisers, especially big spending consumer packaged-goods firms, will pump more dollars into the web?

There are plenty of reasons to believe, with stats galore to back up any rational argument, but three compelling reasons stand out.

#1 The Population of Internet Users Continues to Grow

Advertisers need an audience for their messages, and – all other things being equal – larger audience numbers draw more advertising dollars.

So, how many are actually using the web today, and how many will be online next year and beyond?

eMarketer estimates there were 119 million Americans online at the end of 2001. That represents a solid 25% increase from 2000 when only 95.4 million were accessing the internet on a regular, monthly basis.

Looking ahead, the US will have 136 million active users by year-end 2002 and 165 million by 2004. This equates to a compound annual growth rate of approximately 15%.

#2 Media Time is Shifting Towards the Net

Branding is a function of awareness, and awareness for a given brand is driven by exposure. The more time I spend with the Internet, therefore, the more likely I am to see a particular campaign and become aware of your brand (assuming, of course, you are advertising online).

The research data clearly indicates that those spending time online spend less time with television, radio and print. After all, there are only 24 hours in a day.

And, according to the November 2001 UCLA study on internet usage in the US, the more experienced internet users are, the more time they spend online.

In addition, those accessing the Internet from multiple locations – at home, work and other places – spend more time online than those who only get online from home.

#3 More Buying Online

It’s an irrefutable axiom: the more time people spend online, the more they shop, and the more they tend to buy.

Based on an examination of data from the leading research firms, there is widespread agreement that the number of online buyers in the US is growing at a rapid rate. In 2001, 57.5 million Americans bought at least one item online. This number will rise to 90 million by 2004.

What’s more, the demographics of Internet users, and particularly buyers, are attractive to marketers. Even today, those online are slightly more educated and more wealthy than their offline counterparts.

At the end of the day, advertisers must ask themselves a simple question: why would you not want to communicate targeted messages to people in the environment in which they are shopping and buying? Consumers are going to the Internet, not only to buy, but also to browse and research products and services online. They are on a mission, and even if they don’t chose to buy online at the point of seeing your ad, they may well do so later, either online or off.

With over 119 million actively online and 60 million making purchases, advertisers can no longer afford to ignore the online channel. Can you?

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