The internet was one of the few ad categories to show year-to-year improvement during 2008, but even its growth slowed after years of 20- to 30-percent jumps. Online generated an all-time high $23.4 billion last year, up 10.6 percent over 2007 and the fifth straight year it’s hit a record total, according to the Interactive Advertising Bureau. That’s hardly gloom and doom territory, but days after those numbers were released online intelligence firm eMarketer reissued its forecast for full-year 2009, downgrading its ad revenue prediction for the second time in less than six months. According to the new forecast, online ad spending will be up just 4.5 percent this year, to $24.5 billion, down from an earlier prediction of 8.9 percent growth to $25.7 billion. That would be the lowest growth rate since 2002, the year of the dot.com crash, and it mostly reflects the problems of the general economy rather than advertiser disenchantment with the web. Then by 2011 eMarketer predicts that growth will have quickened to 10.8 percent. David Hallerman, senior analyst at eMarketer, talks to Media Life about the reasoning behind the new forecast, what online categories will drive future growth, and which forms of traditional media could be passed by internet advertising revenue.

What factors prompted you to cut your outlook for 2009 again?

Well, obviously we’re looking at the economy. When people spend less, that affects all advertising.

The big four portals, Google, Yahoo, MSN/Microsoft and AOL, collectively take in about 60 percent of U.S. online ad revenues. And their trend lines over last year for every quarter for all four companies was down. When you look at such a big slice of the market with such an obvious trend, that’s also a contributor.

Also, looking at other sectors, newspapers online have been soft. Classified ads, the third biggest category of online advertising, which also includes the auction category, is suffering. EBay had its first negative downturn in fourth-quarter 2008.

So it’s all the indicators, not just the economy.

Why will spending rebound to double-digit growth in 2011?

Our projection of 4.5 percent is a classic good news-bad news situation. The bad news is it will be the lowest positive gain ever for U.S. online ad spending.

At the same time, when you compare it to any other medium, it’s the only one showing positive growth this year. The assumption of some economic recovery happening is only part of that. The other part is firmly based in the shift of marketing dollars online because it’s more accountable and more targetable.

Marketers, if they take a $100,000 out of their TV budget, they won’t put it all online, but more and more of a portion will start to go online.

Also, the greater measurability and targetability produces a higher ROI, and that puts pressure on other media to lower their prices. So again, you begin any conversation about spending at this point without mentioning the economy, but that only reinforces trends that predate the economic downturn.

There are obviously a number of media categories that are seeing spending contract. Why will online continue to grow, albeit at a slower rate?

When times are tight people become more conservative about their spending. Being more conservative, they want ad dollars spent on something with which they can show their bosses results.

As for the amount of time people spend online versus the amount of dollars spent as a percentage, there’s still a wide gap there.

The consumer packaged goods industry, for example, puts a very small percentage of their dollars online. But they’re starting to put more as they find ways to build their brands. This is where people have talked for a long time of the convergence of technology, and this is one of the reasons why video will be one of the largest growth areas.

What sectors (display, search, classified, etc.) will see the most growth over the next few years and why?

There are two ways of looking at it.

In terms of percentage, clearly video. Even in 2008 video grew by 127 percent, but it’s coming from a small base. Projections are for the 40 percent range for the next few years, and why? It’s like a stool; video has three legs supporting it: brand marketers want an ad format online that fits into their need for brand association; publishers want it because they’ll get paid more and they need the money; and the third is the audience. Consumers, as they see more high-quality video online, they’re willing to accept the ads because they’re used to it. Not everyone, but most people understand the tradeoff.

But if we look at it in terms of dollars, search is still king. The most additional dollars will come on from search spending than any other form.

Are there categories where advertisers had been reluctant in the past but are now really interested in online because of the lower prices?

Well, there are the lower prices in something like display advertising, which could have a spending downturn this year. The networks are making it a commodity, which means there will be far more growth of impressions than dollars, because the price has dropped. More advertisers may be using it, but the dollars won’t reflect that.

What's the biggest misconception about online advertising right now?

You know, it’s the measurability of online advertising.

It’s greater than for any other medium, but it’s still very incomplete. To say the ability to measure brand advertising is incomplete and yet still better than other media is a funny in-between place. When people hear it’s better, the misconception is that it’s excellent measuring.

Are there other ad categories that online could pass in terms of total revenue, because they are struggling (i.e. radio)?

It could be passing magazines. Certainly consumer magazines alone, but you also have to look at trade magazines. In terms of the full magazine industry, that could be the next.

Newspapers is a hard one. It’s very hard to project right now how far the newspaper industry will fall. It won’t pass TV.