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Online Ad Spending Will Keep Growing

Geoff Ramsey—CEO, Co-Founder

October 27, 2008

eMarketer will be giving another haircut to its online ad spending predictions next month. But that’s not necessarily bad news for online marketers.

In our latest projections, released in August, eMarketer saw online advertising growing from $24.5 billion in 2008 to $28.5 billion in 2009. eMarketer benchmarks its online ad spending projections against quarterly reports by the Interactive Advertising Bureau (IAB), which uses PricewaterhouseCoopers (PwC) to conduct its surveys. For the first half of 2008, the IAB reported 15.2% growth for online ad spending, which is in line with eMarketer’s predictions.

Another factor confirming our predictions is that the combined growth rate for first half online ad revenues among the top four US portals—Yahoo!, Google, AOL and Microsoft—was 19%.

Although most of the following projections from a range of different analyst firms and researchers are likely to be high, since they were published before the recent outpouring of negative financial news, there is still a consensus among many analysts that spending growth for online advertising will continue to show double-digit gains in both 2008 and 2009. eMarketer agrees.

Comparative Estimates: US Online Advertising Spending Growth, 2008 & 2009 (% change)

Of course, there are analysts and pundits who have a far graver view of the state of online advertising. They see the general bullishness behind online ad spending growth as overblown, misplaced or just plain foolish. As Sandeep Agrarwal, an analyst with banking firm Collins Stewart, recently said in an interview with Advertising Age (October 13, 2008), “Failed banks… job losses and lower consumer confidence now characterize the macroeconomy. We believe this will hurt the Internet sector more than currently believed.”

Even more negative is another banker, Bill Morrison, of ThinkPanmure, who sees online advertising spending sinking like a rock, to only 3% growth in 2009. Said Mr. Morrison, “We believe it is prudent for investors to expect significantly lower growth in Internet advertising next year.”

That’s what the pundits say. What do actual marketers have to say?

According to a June McKinsey & Co. survey of 340 senior marketing executives worldwide, 91% are using online advertising, and over one-half indicate that their companies plan to maintain or exceed current levels where possible. Even more telling, 55% of marketers said they’re cutting expenditures on traditional media, precisely in order to increase funding for online efforts.

Last spring, Forrester Research surveyed 333 marketers with 200 or more employees and asked a very telling question: “How would you change your online spending patterns if there is an economic recession in the next six months?” Over one-quarter said they would increase spending on Internet advertising, while only 13% said they would decrease it. Another 15% were undecided.

Even more-bullish expectations for digital spending were cited by respondents in an Epsilon CMO survey conducted in September. Among 175 senior marketing executives, 63% expected increases for interactive/online marketing spending for 2008; only 14% expected a reduction.

This month, a survey by MarketingProfs, of 600 US marketers, found that 60% planned to increase their spending on online advertising in reaction to the downturn.

“In the recession of 2009, marketers will be making cuts almost across the board, and will seek safe harbors and cost-efficient alternatives.”
—Jack Myers, JackMyers Media Business Report, October 13, 2008

Marketers should rightly ask, “What is behind the bullish projections for online ad spending, especially when most traditional media are taking the financial equivalent of body blows?” The seven reasons are as follows:

  1. The Internet is inherently more measurable and accountable than are traditional channels.
  2. The Internet allows for better, more-granular targeting than do other forms of media. That reduces media waste and can save marketing dollars.
  3. The Internet is interactive, thereby allowing for a higher degree of engagement with consumer and business prospects and customers.
  4. Particularly among younger consumers, the Internet is accounting for a larger and larger share of total media time; numerous studies demonstrate that teens, millennials and other younger cohorts are spending more time online per week than they are watching television.
  5. The Internet plays into the consumer-in-control movement and therefore provides new opportunities for marketers to be a part of their conversations about interests, attitudes, shopping plans and even brands.
  6. New Web 2.0 phenomena such as blogs, social networks and Twitter provide marketers with the potential to gain rich insights into consumer behavior and attitudes (the Internet is like a perpetual focus group on steroids).
  7. The Internet, unlike any other medium or channel, allows marketers to reach prospects throughout the entire consumer buying cycle, from initial awareness through pre-information-gathering to sales and post-sale feedback and support.

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