Despite AOL Woes, eMarketer Sees Brighter '03

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Despite AOL Time Warner's gloomy forecast that advertising and e-commerce sales at its America Online unit will plummet 40 percent to 50 percent in 2003, New York market researcher eMarketer Inc. is sticking with its expectation that online advertising will begin to recover next year.

Perhaps both are right.

David Hallerman, senior analyst at eMarketer, said AOL falls in a unique category. Hence, its problems may not be typical of other online media properties, or vice versa.

"It's size," he said. "It was making more long-term deals back before the Internet bubble burst that other companies weren't able to, maybe wanted to back then, and maybe were lucky that they couldn't."

Simply put, AOL cannot get its advertisers to renew their old agreements. Those who do again commit are negotiating better rates in a slipping economy.

Still, AOL Time Warner's admission is shocking. Once known for its optimistic forecasts, the New York company is now overly cautious. Even rival MSN claims it will report ad revenue gains this year. AOL, Yahoo and MSN are estimated to collect 40 percent of all U.S. online ad revenue.

AOL's total revenue this year is expected to be $8.8 billion to $9 billion. Ad and commerce revenue will comprise $1.5 billion to $1.6 billion of that.

Even eMarketer acknowledges that the U.S. online ad industry will shrink 11.5 percent this year. But online ad spending will grow from $6.38 billion this year to $6.7 billion in 2003, the company's Interactive Marketing: Stats, Strategies and Trends report said.

EMarketer's projections for 2004 and 2005 are equally rosy: $7.2 billion and $8.1 billion.

"It's not like we're not recognizing there is going to be a decrease this year," Hallerman said. "It's just that we're seeing other indications that point to a bounce-back."

The rebound is attributed to new spending from old-line advertisers.

"There are indications of traditional companies who are trying to do marketing and are seeing the Internet," he said. "Even a small increment, by putting a few more percentage points of their budget onto the Internet, [will help].

"They're seeing that [online advertising] helps increase some of the standard branding results," he said. "We call that awareness advertising. Companies are realizing that Internet advertising isn't just a direct response medium."

So, traditional marketers are expected to earmark more ad dollars toward the Internet as the economy eases from a slowdown. Interestingly, even when six types of online ads showed losses, keyword searches, classifieds and rich media showed strength, eMarketer said.

"The somewhat slow use of broadband by consumers, but increased use of rich media by companies, which again is more for branding types of advertising and marketing," Hallerman said. "Those are more expensive ads, and yet companies are finding them more effective and more targeted."

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