Online Ad Spending Growth

2005
A new milestone for the online advertising industry

It appears that online advertising has become mainstream as Corporate marketers have made it a standard part of media budgets. Spending on online advertising is projected to reach $12 billion in 2005 as more marketers lose confidence in the effectiveness of traditional ads and spending looks set to accelerate further as we enter into 2006.

According to a study released in May by Forrester Research, nearly all of the marketers surveyed said they plan to cut spending in traditional channels such as print and direct mail to fund increases in online ads. Tim Armstrong, Google's advertising sales vice president, believes that 2005 marks the turning point when advertisers switched from testing to investing in the decade-old medium. "The experimenting and testing phase begun in the 1990s has ended. Corporate ad buyers are investing now.” According to Armstrong, there are two primary factors are driving advertisiers interest and realocation of their ad budgets. First, consumer adoption of the Web has far outpaced advertisers' commitment to the medium and secondly, Madison Avenue executives have begun advising clients to close the gap by committing more dollars online.

These shifts are not just benefiting Google but the entire industry. Greg Stuart, IAB President and CEO states that “On average, people today spend about 14 percent of their "media time" on the Internet, up from basically zero ten years ago, and advertisers are reacting to this change. When consumers shift like that, marketers are sure to follow".

Jupiter Research estimates the U.S. online advertising market will grow 28 percent over last year, to $11.9 billion in 2005 (the IAB concures), moving to $13.6 billion in 2006 and $15.1 billion in 2007. Industry estimates put Google's market share at 30 percent of overall online ad spending, with as much as 40 percent of the category it dominates--paid search. Estimates vary however analysts believe about 5 percent of U.S. advertising dollars will be spent online this year, up from about 2 percent just a couple years ago. In short order, 10 percent or more could move online. After years of fighting an uphill battle, it appears that the business can finally carve out a piece of the media budget pie that they can call they’re own. The question that is yet to be answered for the years to follow is just how much of it they will leave for the others!