Forrester: Online Ad Spending Will Reach $26B by 2010

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Nearly half of marketers already doing online advertising will decrease spending in traditional advertising channels to pay for an increase in their online ad spending this year, according to a survey released yesterday by Forrester Research Inc., Cambridge, MA. Search engine marketing is expected to fuel much of that growth.


Forrester said total U.S. online advertising and marketing spending will reach $14.7 billion for the year, up 23 percent from 2004. It also expects the category to hit $26 billion by 2010, which would represent 8 percent of total ad spending and rival spending on cable/satellite television and radio.


To contrast, a joint study by the Interactive Advertising Bureau and PricewaterhouseCoopers last month said interactive ad revenue grew 33 percent last year to $9.6 billion. The report found that search, classifieds, display and rich media ads were the most popular online tactics.


Still, those figures are quite small compared with overall ad spending, which reached $155 billion in 2003, according to the Direct Marketing Association's 2004 Statistical Fact Book.


"We are seeing the budget shift away from the direct mail, magazines and newspapers. But a lot of increase in spending is coming from new budgets altogether," said Shar VanBoskirk, consulting analyst at Forrester and co-author of the report.


VanBoskirk also said the surveyed firms were not online-specific companies but already were advertising online. Forrester surveyed 99 leading marketers and included data from four forecasts.


"The addressability of the online medium lets you accomplish the same thing that you would do with those channels but in a more immediate way and in a way that's easier to track. And also because television is such a dominant force that people aren't as able or as willing to take money away from that at this point," she said. "Still, the various media have a different and appropriate role. Online ad spending is not going to replace these other forms of advertising."


Though marketers were optimistic about the role of online advertising, Forrester said changes in consumer behavior will be the main driver of online ad growth. The researchers cited four consumer trends to support this: time spent online, online buying, online product research and consumer advertising backlash across many channels.


Forrester also found that marketers rely on third-party e-mail lists to compensate for list attrition but will gradually wean themselves from this. Forrester predicts that e-mail list rental will peak in 2007 at $761 million before tapering off in 2008 to $665 million.


List rental budgets will be redirected into channels such as co-registration, search marketing and display ads, the study said. In turn, list brokers will focus on business-to-business lists, where sizes are high enough to make the CPM price worth it. Meanwhile, Forrester said, marketers will begin integrating e-mail better into their database marketing.


"I see e-mail as a great retention tool," VanBoskirk said. "I do think you'll see the spending there shifting away from pure delivery to more of an integrated solution as e-mail becomes just another channel."


Other findings:


· Search engine marketing will grow 33 percent this year, reaching $11.6 billion by 2010. Display advertising, which includes traditional banners and sponsorships, will increase at an average rate of 11 percent over the next five years to $8 billion by 2010.


· New ad channels will draw marketers' interest and spending. Sixty-four percent of the respondents are interested in advertising on blogs, 57 percent through RSS feeds and 52 percent on mobile devices, including cell phones and PDAs.


· Marketers are losing confidence in the effectiveness of traditional ad channels and think the Internet will become more effective over the next three years. Seventy-eight percent of respondents said they think search will become more effective, while 53 percent said TV advertising will become less effective.


· Product placement is the only non-digital ad channel to reach the same confidence as online channels. Only 8 percent think product placement will become less effective in the next three years.


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