The future of Online Ad Spending.

“Internet ad growth won’t be able to maintain the historically high 30%-plus levels of the past two years, but that is not necessarily bad,” says David Hallerman, eMarketer senior analyst and the author of the new US Online Ad Spending: Peak or Plateau? report. “Internet ad spending right now is like a baseball player who hit 61 home runs two years ago, and smacked 55 dingers last year. Even if he hits 46 homers this year — another fine season by any standard — some observers will be quick to downgrade his feat in light of his history. ”

eMarketer projects online ad spending growth rates of 26.8% and 15.1%, respectively, in 2006 and 2007. Translated to dollars, this year’s growth rate equals $15.9 billion.

Even as spending growth subsides, the continued positive gains will push US online ad spending over $21 billion in two years and past the $25 billion mark by the end of 2010.

“In any other medium, executives would be delighted to see ad spending grow at those rates,” says Mr. Hallerman. “But when these rates are put into perspective — compared against the recent rates of growth — a number of commentators will start devaluing the online advertising market. But they will be wrong.”

In the US, for the foreseeable future at least, online ad spending will continue to carry overall advertising spending, making up for — or nearly so — shortfalls in other media.

Five key trends will account for sustained growth of Internet ad spending:

– Ad spending shifts from other media, most notably broadcast television and newspapers, to the Internet

– Larger Internet ad budgets in general as companies both grow more accustomed to various online ad formats and increasingly seek the audience found on the Web

– Higher prices for both branding ads (video and plain display) and direct response vehicles (mainly paid search)

– Branding objectives becoming increasingly relevant online, which will lead more marketers who have spent little for
Internet advertising to devote larger budget shares to various interactive formats, most especially video

– The continued small shares many large marketers budget for Internet advertising, which need to budge by only a few percentage points to create relatively large gains for this advertising medium

“While online spending increases over the next four years will remain sound, especially in contrast to the four other major measured media — television, newspapers, magazines and radio — it will tail off for several reasons,” says Mr. Hallerman. “These include a deteriorating economy overall and a maturing market that cannot sustain annual 30%-plus growth rates.”

Courtesy of http://www.emarketer.com