Online Ad Revenues Set To Soar Globally

A report released Monday projects that online global advertising will swell from $4.3 billion (US$) last year to $28 billion by 2005, but that many companies are unprepared to take advantage of the surge.

Internet and e-commerce research firm Jupiter Communications, Inc. (Nasdaq: JPTR) said that almost six percent of all global advertising revenue will be spent on the Internet in five years. The increase is projected mainly because the number of Internet users is expected to grow from 300 million now to close to 800 million, and those users will be spending more time online.

However, because of a lack of innovation in pricing models, problems integrating old and new media, and a stubborn dependence on regional media-buying, companies will not be able to fully exploit the numbers.

“While the numbers paint a compelling picture for the Web as a global channel for advertisers, there are significant hurdles to making the Internet a superior global communication tool,” the study concluded.

Challenges Marketers Face

The study outlined several barriers to the expansion of Internet advertising:

• A reluctance to move away from regionally focused media campaigns. The research showed this reluctance, coupled with differences in market sophistication, will limit the effective global reach of online ad campaigns. While online ad spending totaled $3.5 billion in North America in 1999, it was almost nine times less, or $434 million, in Western Europe, the second largest market. Asia followed with $225 million in online advertising spending.
• Hesitancy on the part of some media buyers and sellers to move away from current media or pricing models and embrace innovation. Jupiter said that with as few as one in five publishers offering results-based pricing, the potential efficiencies that the Internet will offer over traditional marketing media will be limited.
• The inability of traditional players and agencies to conduct highly integrated campaigns across media will be exacerbated by increasingly complex platform issues, with the growth of non-PC access points — such as wireless devices and interactive digital TV — becoming increasingly prevalent.

Jupiter advised companies to do what is necessary to overcome the hurdles because “There will be few prizes for second place in the race to be a globally effective brand.”

Spending Patterns

North America is expected to continue its dominance of the worldwide online advertising market. In 2000, $5.4 billion of the global total of $7 billion will be spent for online advertising in North America, growing to $16.9 billion out of $27 billion by 2005.

Jupiter says that the United States alone accounts for 75 percent of global ad spending.

Europe and Asia are the second and third largest markets, with spending in Europe projected to reach $5.3 billion in 2005. Asia will spend $502 million in online advertising in 2000 and $3.3 billion in 2005.

Rounding out the top five major markets are Latin America and Australia/New Zealand. Latin America, which is expected to experience the strongest growth rate at 68 percent, will grow from $52 million in 1999 to $127 million in 2000 and almost $1.2 billion in 2005. Australia/New Zealand is expected to grow from $24 million in 1999 to $74 million in 2000 and $462 million in 2005.

Other markets accounted for $9 million worth of advertising dollars in 1999 and will account for $28 million in 2000 and $578 million by 2005.

About the Study

Jupiter calculated current online spending based on public financial filings and extensive interviews with online ad sellers. The forecasts were generated with consideration of the following factors: current online penetration and usage behavior; future size of audience; Internet commerce potential; offline advertising spending; media consumption; and supply-side growth expectations.