There's good news on the not-too-distant horizon for ad-supported web sites.
    Not only is a healthy revenue growth rate expected for internet sales for next year, but growth of the internet as a medium is expected to continue to far outstrip ad spending growth on traditional media, according to a new report from online researcher eMarketer.
    Even in 2001, online spending is set to grow, if modestly, as eMarketer forecasts a 7 percent increase in spending over 2000 to $7.6 billion. 
    Next year, spending on internet ads will increase to $10.3 billion--a 36 percent jump. EMarketer attributes that increase to a revitalized economy paired with pent-up advertiser demand.
    "Online advertising is alive and well, even though it has been impacted by a significant economic slowdown," says eMarketer senior analyst Jonathan Jackson.
    And by 2005, the research firm paints an even cheerier picture, projecting that online ad spending will hit a robust $23.5 billion.
    The study also notes that ad spending on the internet still outpaces ad spending across other media.
    Overall, eMarketer expects ad spending on traditional media to remain flat or grow between 1.4 percent and 2.5 percent. And while the web accounts for 10 percent of the time that people spend consuming media, just 2.9 percent of media dollars go there.
    EMarketer compiled the report by analyzing research from 25 organizations, including Jupiter Media Metrix, Competitive Media Reporting and Veronis, Suhler & Associates.
    Comparing 2001 ad spending estimates, eMarketer cited McCann Erickson at the low end—well-known ad spending research guru Robert Coen there predicts that this year’s online ad spending will slump to $5.4 billion.
    The report also quotes Coen this way: "Internet numbers continue to be a mystery to me."
    At the high end, ActivMedia Research predicts that spending will hit $23.5 billion.
    Much of the furor over slowed growth is unrealistic, the study concludes, because analysts have interpreted the slowdown as an all-out stop or even a retreat, thanks to the breakneck pace at which online advertising grew in its early days.
    Triple-digit growth, the report says, will no longer be possible as the medium matures. In 1998, for example, $1.7 billion was spent on online advertising, setting the stage for a 111 percent increase in 1999, when online ad spending totaled $3.6 billion.
    EMarketer’s interpretation is that gloomy divinations are exaggerated reactions to slowed overall growth and the collapse of internet companies that were fundamentally unsound to begin with.
    "Although several investment banks and industry naysayers have recently been predicting a negative growth rate for online advertising this year, eMarketer sees continued strength in the medium, particularly because of its targetability and measurability," Jackson says.
    When Merrill Lynch analyst Henry Blodget revised his forecast on internet ad spending for this year, he downgraded it 25 percent, to $6 billion from $8 billion.
    Yet the report quotes Blodget in an admission that the current downturn in spending is "cyclical, not secular," because of the irrational exuberance of 1999 and early 2000.
     EMarketer likewise revised its own projections downward. In June 2000, eMarketer predicted that online ad sales for 2001 would hit $9.5 billion. But when the company recast its forecast this March, it factored in the current economic downturn, slowing ad sales and other companies’ revised estimates.

May 8, 2001 © 2001 Media Life

-Marty Beard is a staff writer for Media Life.

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