Jupiter: Online Ad Inflation on the Way

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The Internet advertising industry will grow substantially in 2004 thanks to rising ad prices, according to Jupiter Research.


The research group was due to release its annual ad forecast today. It predicts the online advertising market will grow 27 percent this year to $8.4 billion, on its way to hitting $16.1 billion in 2009. Jupiter said paid search and display advertising would see rising prices that would account for the lion's share of growth.


Search looks prepared to remain the near-term catalyst for industry growth. In 2004, Jupiter forecasts the market will grow 34 percent to $2.6 billion. By 2009, it expects the market will hit $5.5 billion.


Jupiter expects click-price inflation will account for the growth, not an increase in search inventory. The finding echoes recent research from Nielsen//NetRatings, which said constraints on search inventory would push click prices up unless search engines made innovations in areas such as personalized and local search.


"Consumer search levels are pretty mature now," said Nate Elliott, a Jupiter analyst. "You're not going to see a lot more searchers at any point, or an increase in the number of searches."


Jupiter does not count contextual listings program like Google's AdSense in its search forecast. Google has expanded AdSense to thousands of content sites, and its new e-mail system, Gmail, also will carry AdSense listings.


Jupiter thinks the price increases will not be relegated to search. After years of stagnation and low CPM rates, display advertising will also see pricing increases thanks to an increased demand for online advertising. Jupiter expects spending on display advertising will rise 24 percent this year to $3.9 billion. This is the first increase in industry-wide CPM rates that Jupiter has tracked since 1999.


"Prices deserve to go up," Elliott said. "Marketers are becoming more efficient, they're getting more use from online advertising and they're able to pay more."


He cited improvements publishers have made in targeting capabilities that let advertisers find their audience more efficiently. Contextual ad networks such as AdSense let publishers make incremental revenue off inventory formerly sold for very little, he added.


Jupiter said search marketers and online advertisers would need to turn to analytics tools to maintain their levels of return on investment. It noted the increased use of more sophisticated metrics for measuring their campaign success rates in a survey. It revealed that more than half of marketers said they tracked conversions to online sales, and 43 percent measured return on ad spend.


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