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Online Advertising Spending Growth to Level Off: eMarketer

Online ad spending may have to settle for heroic, rather than superheroic, growth.

FEBRUARY 26, 2007 - Having grown by more than 30% for each of the last three years, online ad spending in the US will rise by less than 19% in 2007, according to new eMarketer estimates.

Lower annual growth rates are inevitable for any growing market; as total spending increases, each new dollar represents a smaller percentage of the total. Still, the widely expected fall in US economic growth will have the very real effect of constraining advertising budgets in 2007.

Online ad spending will not have negative growth for the foreseeable future. And at 18.9%, growth in 2007 will far surpass the levels seen in all other major media.

While online video advertising will eventually contribute far greater sums to the Internet totals, significant enough levels of spending will not occur for several years. However, 2008 will see spending bounce back, supported by the US presidential elections and the Summer Olympics, with slowing but still strong growth from 2009 through 2011.

While virtually all researchers expect online ad spending to increase each year through 2011, five firms — Borrell Associates, Forrester Research, JupiterResearch, Oppenheimer and PricewaterhouseCoopers — see positive annual growth slipping into single figures for the first time since the dawn of Internet advertising in the 1990s (apart from 2001 and 2002, when online ad spending fell by 11.8% and 15.8%, respectively).

eMarketer's view is more bullish, projecting annual growth falling to 13.0% by the end of 2011. This is based on three premises, according to eMarketer senior analyst David Hallerman, who made the projections.

1. Even if the economy slows down, continued growth in the online audience and the need for advertising to follow that audience will drive an ongoing shift away from other media, most notably newspapers and radio
2. The opportunities for better targeting and more accurate tracking offered by online advertising relative to other media makes spending on the Internet even more appealing in a soft economy
3. As online video advertising becomes 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

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