Online Ad Sales ReboundingOnline Ad Sales Rebounding

Internet advertising is coming back. New research shows that online ad spending remains modest, but it's growing as part of an overall advertising-industry rebound from the 2001-2002 recession. However, online ads are recovering at a faster pace than their TV and print counterparts. Advertisers will increase spending this year by 6.3% online versus 4.7% in conventional media, according to the Internet market-research firm eMarketer Inc.

Why would online ads outpace those in traditional media? Because more people use the Internet than ever before, and it's no longer seen as experimental. Plus, many ad buyers are Generation Xers who came of age using computer technology. "At ad agencies, younger people are getting into positions of authority," says eMarketer senior analyst David Hallerman. "The Internet is part of their daily life."

Online spending as a percentage of overall ad dollars is at least three years away from levels reached during the dot-com boom, when companies spent heavily while experimenting with Internet ads, Hallerman says. Online ad spending in 2002 and 2003 represents only 2.5% of total media spending, down from 3.1% in 2000. That percentage should rise to 2.8% by 2005, eMarketer projects.

Last month, the Interactive Advertising Bureau confirmed that the online ad rebound is under way. Spending on Internet ads hit $1.5 billion in the third quarter, up 1% from the previous three months and the first uptick in 1-1/2 years, it said. The report, compiled by PricewaterhouseCoopers, analyzes data from the top 15 online ad sellers, which account for more than 80% of industry revenue. Also, interviews with other online ad companies indicate that "growth is much stronger than is reflected in this report," IAB president Greg Stuart says. And Tom Hyland, chairman of PricewaterhouseCoopers New Media Group, expects a strong fourth quarter as well when his firm releases updated numbers later this month. EMarketer projects fourth-quarter 2002 online ad revenue at $1.9 billion, which would be the most advertisers spent online since the second quarter of 2001.

The Internet outpacing other media in ad spending growth is a global phenomenon. A recent London School of Business study forecasts that businesses in Britain, France, Germany, Japan, and the United States will boost their interactive marketing expenditures, which include online advertisements, by 19.1% between 2001 and 2003. Most other categories, including conventional media ads and direct mail, will rise by single digits. Britain and the United States will see the biggest increases in online marketing, by 47.5% and 25.3%, respectively.