Online Ad Revenue to Double to $18.9 Billion by 2010

Another sign that e-commerce has come of age appeared yesterday as JupiterResearch predicted online advertising would reach US$18.9 billion by 2010 — almost double last year’s gross of $9.6 billion.

Much of that revenue growth will be stoked by search engine advertising, which garnered 40 percent of online ad sales in 2004, compared to 27 percent for display and sponsorship advertising and 18 percent for classified advertising, according to another report, the Interactive Advertising Bureau’s (IAB) 2004 annual report on Internet advertising.

“There is phenomenal momentum behind search engine advertising,” JupiterResearch senior analyst Gary Stein observed in a statement. “The number of advertisers using search to market products continues to grow, as does the overall efficiency of the market — search engines are getting better at making money off search engine results pages.”

Quick Returns

Charlene Li, an analyst with Forrester Research, which is based in Boston, added, “The reason that it’s growing [search advertising]quickly is that people can see money going in and quickly coming out. They spend money on marketing and they actually see sales on the back-end at the cash register.”

“With display advertising, it’s a bit more loose,” she told the E-Commerce Times. “Oftentimes, the reason you do it is for brand awareness, not necessarily for direct response.” Part of the allure of search engine advertising is its ability to target the intent of consumers, she explained.

“You know someone’s intent much more clearly if they’re using search because they have put in the search terms for what they’re actually looking for,” she said. “Because of that, I can target the person with the ad very specifically.”

“If I’m on a Web page, you don’t know what my intent is, for the most part, especially if I come on to the home page of something like Yahoo,” she said.

Deep Pockets

Pete Petrusky, advisory services director for PricewaterhouseCoopers, which wrote the IAB report on 2004 Internet advertising revenues, maintained that online marketing is entering a second phase.

“What’s driving it is an improved infrastructure where advertisers have a much better opportunity to present and deliver more compelling advertising on this medium than they did five years ago when most users were held hostage to dial-up speeds,” he told the E-Commerce Times.

“Now you’ve got broadband that’s not only expected to grow but get faster over the next 18 months,” he continued. “That provides brand advertisers a very large audience to target.”

“The medium is in a much better position today to satisfy brand advertisers, which have larger pockets than direct-marketing, performance-based advertisers,” he said.

Cable TV in the Making

IAB President Greg Stuart compared the state of online advertising today to the nascent cable television market in the 1970s and 1980s. At that time, CATV operators targeted direct marketers — the ones predominantly buying search ads now — as advertisers.

“Direct marketers were the first ones to use cable because they don’t care where their message occurs; they only care about performance,” he told the E-Commerce Times.

“Over time,” he continued, “the brand advertisers began to look at their direct-marketing brothers and they said, ‘Hey, this stuff is working for the direct marketers; it will probably work for me in branding.’ That’s when you began to see a real escalation in cable advertising.”

Perilous Predictions

In its report, released at the Search Engine Strategies Conference & Expo held this week in New York City, JupiterResearch noted that other advertising areas will also grow during the next five years.

Classified advertising, for example, will grow 10 percent, reaching $4.1 billion in 2010, the report predicted.

Rich media spending will achieve a 25 percent annual compound growth to reach $3.5 billion in 2010, it said, and streaming media will blossom even faster — a 30 percent annual compound growth rate during the same time frame, to $943 million.

The IAB’s Stuart, though, had a word of caution about Internet predictions. “From some of the numbers that we’ve seen in the past, the analyst firms have been horribly wrong,” he declared. “There’s still too much new development, too much innovation going on to draw a line in the sand about what really is going to happen.”