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International: Internet ad revenues nearing a new high

24-May-2004
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International: Internet ad revenues nearing a new high

Internet advertising has rebounded from the dog days of the dot-com bust and is on track this year to eclipse the record $8.1.billion in revenues it took in four years ago.

The Internet finally appears to be living up to its promise of becoming a viable advertising medium. Although advertising on Web sites remains but a tiny fraction of the overall US advertising market, it is one of the fastest-growing segments.

Experts say the Web’s share of total ad dollars will continue to rise as the Internet becomes more ubiquitous and the media marketplace more fragmented. Internet sites have benefited from improved technology and an increasing number of people who have high-speed online connections.

And of course, there’s the Google factor. The Mountain View, Calif, search engine company booked nearly $1 billion in revenue last year; in the most recent quarter, 96 per cent of Google’s revenue came from ads, establishing search as the hottest category of Internet advertising around.

Overall, Internet advertising reached $7.3 billion in 2003, up 21 per cent over 2002, according to the Interactive Advertising Bureau. EMarketer, a New York research company, anticipates continued double-digit growth of 15.6 per cent, to $8.4 billion, this year, and 17.9 per cent, to $9.9 billion in 2005.

That outstrips the 5 to 7 per cent growth for advertising in general that industry watchers predict. Internet ad spending accounted for about 3 per cent of total US ad spending in 2003, the bureau reported, up from 2.5 per cent.

“We have the wind at our backs at this point,” said Greg Stuart, chief executive of the bureau. “What else are marketers going to do? Put more money into television? There’s not a marketer alive who would admit to doing that.”

Most of the revenue went to five big companies, Stuart said, each of which took in roughly $1 billion: Microsoft, AOL, Google, Yahoo and Overture. And last October, Yahoo bought Overture for $1.8 billion.

Net advertising began with a lot of hype as it enjoyed a meteoric rise in the late 1990s. The young industry’s revenues grew rapidly on an annual basis before finally peaking at $8.1 billion in 2000.

But as the economy headed south, and many of the dot-coms that were buying ads went belly-up, the market started to shrink - to $7.1 billion in 2001 and to $6 billion in 2002. Companies were giving away ads.

“Three years ago,” said Shelby Bonnie, chief executive of San Francisco’s Cnet Networks, which runs Web sites about technology, “you couldn’t pick up a newspaper or a magazine without reading about someone saying Internet advertising was dead or it wouldn’t work.”

Now, Bonnie predicts, the industry is at “the front end of what is probably a 10-year migration of dollars” into online advertising from traditional advertising. Larry Kramer, chief executive of MarketWatch.com, a San Francisco provider of online financial news, agreed.

“A lot of our pitch is just: ’Wait, this is like cable was 20 years ago,’” Kramer said. “The medium is coming into its own. ... In the end, advertisers will go to where the people are, and people are on the Web for more and more time.”

Kramer said in his company’s most recent three quarters, ad revenue jumped 30 per cent year-over-year in the three months that ended last Sept 30, then 40 per cent in the period ended Dec 31, and then 48 per cent in the quarter ended March 31. An ad that once garnered $30 to $50 per thousand views on his site is now commanding more than $100.

It’s not just dot-coms advertising online anymore. “A lot of larger advertisers have woken up and smelled the coffee,” said Charles Buchwalter, vice president for aalytics at Nielsen/NetRatings.

Companies like Safeway, DaimlerChrysler, Schering Plough and MBNA Corp have increased their online advertising fivefold in the past year, Nielsen reports.

“The rise of Google and Overture have made a very real impact on online advertisers’ ability to get a return on their investment,” said Scott Symonds, media director at Exile on Seventh, an interactive advertising agency in San Francisco.

Those sites allow advertisers to buy a search term. When people search for that term, the ad pops up. That allows the advertiser to target its customer far more precisely than any other medium.

“Google is such a highly efficient channel for getting people who are looking for something,” said Steve Nelson, executive vice-president at Clear Ink, an interactive ad agency in Berkeley, Calif.

In addition, more people are using broadband to get online, making it easier for advertisers to use compelling “rich media” - audio, video and animation. By 2005, more than one-third of all US households will go online via broadband connections, according to David Hallerman, senior analyst at EMarketer. That’s enabling some advertisers to put television ads online.

Web-only ads are also coming into their own. Comedian Jerry Seinfeld is starring in a new Internet-only ad for American Express that runs four minutes.

Source: NY TIMES

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