Online Ad Spend Growth Is Historic

MARCH 20, 2007

These are flush times for online marketers.

Internet ad spending grew by a third from 2005 to 2006, according to the Interactive Advertising Bureau and PricewaterhouseCoopers (IAB/PwC).

Online ad spending revenues totaled $16.8 billion in 2006, up from $12.5 billion in 2005.

eMarketer benchmarks its own online ad spending estimates against IAB/PwC data. The full-year actual total surpassed eMarketer‘s 2006 estimate of $16.4 billion by $400 million.

"It‘s been a long time since any medium had three years in a row of 30%-plus ad spending increases," notes eMarketer senior analyst David Hallerman. "With a 34% gain in 2006, as the new research from IAB/PwC shows, the Internet now matches cable TV from 1983 to 1985 and broadcast TV from 1952 to 1954 for such strong, long-term spending increases."

Mr. Hallerman added, "Such comparisons to TV advertising are apropos, since online video grabbed everyone‘s attention in the past year."

The growth is not stopping, either, although it is expected to slow. eMarketer estimates that online ad spending will reach $36.5 billion in 2011. That is 13% more than the estimated 2010 total of $32.3 billion.

Looking at those sources that provide several years‘ worth of projections, the similarity in the expected trend in online ad spending is apparent, even when the absolute levels vary. A consensus around reduced but still robust growth is very clear.

At varying points over the next three years, Forrester Research, JupiterResearch, Oppenheimer, PricewaterhouseCoopers and Borrell Associates actually see positive growth slipping into the single digits for the first time since the dawn of Internet advertising in the 1990s.

eMarketer‘s estimates are more optimistic for three reasons. One, even if the overall economy shows weakness, the increasing audience time spent online and the need for advertising to match that audience will mean shifts away from other media, most notably newspapers and radio. Two, the greater targeting and tracking of advertising online, relative to other media, make spending there far more justifiable in a soft economy. Three, as formats such as online video advertising become more widely used, large brand marketers who have up to now only dipped their toes online will devote increasingly greater budget shares to the Internet.