(Reprinted by permission from Virtual Insurance newsletter Oct 26 2001 issue)
Revenue from e-mail advertising will nearly triple this
year, according to a soon-to-be-released research report that highlights a little-noticed
hot spot in an otherwise cold market for online advertising.
Forrester Research estimates companies will spend $1.1
billion on e-mail marketing services this year, up from $400 million in 2000.
Comparatively, sales of banner ads, buttons, sponsorships and display marketing will fall
by 18 percent, down to $6 billion this year from $7.6 billion in 2000, the company predicts.
A second report from research firm Gartner, expected this
week, offers a more encouraging estimate of $7.9 billion in overall ad sales–down
marginally from $8 billion last year, according to the Interactive Advertising Bureau
(IAB), an industry trade group. Unlike Forrester’s breakdown, Gartner’s estimate includes
revenue from classified advertising and e-mail marketing.
The rapid growth in e-mail marketing has come from
traditional online companies, which are increasingly choosing third parties to host their
customer e-mail promotions. Companies benefiting from the trend are not Web publishers but
ad and marketing companies such as Digital Impact, DoubleClick and a raft of dot-coms that run such services.
Market analysts have long predicted e-mail would become an
increasingly important marketing tool for businesses. Jupiter Media Metrix estimated in a
recent report that marketers will spend more on digital marketing such as e-mail and
sweepstakes than on Web advertising by 2006, for a total of $19.3 billion.
The IAB, which publishes annual ad sales figures in
conjunction with auditor PricewaterhouseCoopers, last month said U.S. Web advertising
sales for the first half of the year equaled $3.76 billion. By that measure, if sales
remained flat as some financial analysts expect, the market would be worth about $7.5
billion this year. The IAB recorded a 7.8 percent decline in sales in the first half of
the year from the year-ago period.
Denise Garcia, analyst and author of the Web advertising
report from Gartner, said a new breed of online advertisers evolving from the dot-com bust
has caused growth rates to slow but not stop. Still, the market hasn’t been hit as hard as
traditional advertising because it’s continuing to mature. It’s still “a very small
market, representing only 3 percent of the entire advertising industry” at $250
billion annually, Garcia said.
“Some of these online companies are using a slowdown
in the entire advertising industry as an excuse for not making their numbers, but I think
they haven’t budgeted correctly or they miscalculated the size of market,” Garcia
said. “This is good news for the online advertising market but bad news for companies
that thought that this market would continue growing at double-digit rates.”
As a result, analysts say that Internet ad sales will not
likely gain momentum again until the overall ad industry takes a turn for the better.
Next year, Forrester expects ad sales to increase by 5 percent to $6.3 billion, down from
earlier projections of $7 billion. Jim Nail, senior analyst at Forrester and author of its report, said he
doesn’t expect a rebound in the market until 2003.
“It depends on how you define rebound. I don’t expect
the market to have much more than 12 percent to 13 percent growth rates year over year
from 2003 on,” said Nail, adding that the rates eclipse annual growth for traditional
marketing at 4 percent to 5 percent.
“It’s going to be a slow dawning for marketers
regarding the Internet,” he added. “It has more to do with psychology than
technology at this point. A change in psychology will happen brand by brand, company by
company, fueled by better research and pressure from competitors.”
He said traditional advertisers comprised 60 percent of the
market this year and are expected to equal 72 percent next year.
In contrast, Gartner’s Garcia says that the industry will
likely see a turnaround after the second quarter of 2002.
Looking forward, Gartner estimates the market will be worth
$18.8 billion in 2005, propelled by rich media and broadband advertising. It also reported
that the landscape of advertisers will change from dot-com and technology companies to
traditional advertisers such as automakers and consumer packaged goods companies by 2005.
Meanwhile, Forrester predicts that in 2005 the Web
advertising market will hit sales of $9.1 billion. That figure is only half of the digital
marketing industry comprising e-mail and interactive TV advertising.
Forrester sliced the e-mail market into two areas: customer
communications and opt-in e-mail list services. Sales for list and newsletter advertising
are expected to slightly increase from this year to next, reaching $220 million in 2001
and $223 million in 2002. Sales in customer communications will climb from an expected
$1.1 billion in 2001 to $1.8 billion in 2002.
“Even in the face of all that growth, many companies
still run their e-mail campaigns in-house, which we think will change over time,”
Nail said. “But as much demand as there is for these services, it’s very competitive
because it’s a pretty low-barrier-to-entry business.”
Parsing out the numbers, Nail takes a positive view of online advertising in 2001.
“I think 2001 was a successful year for online. If
two-thirds of advertisers in 2000 were dot-coms, and we all know that the vast majority of
that evaporated this year, the fact that the industry is down only 18 percent–not by 40
percent or 50 percent–is a miracle,” he said. “By all rights it should have
been a whole lot worse.”
Gartner’s projections are based on financial reports and
interviews with the top 20 sites selling online advertising, as determined by
Nielsen/NetRatings from May 2000 to April 2001. It projects this group represents 80
percent of the marketplace. Gartner includes in its estimate sales of e-mail, banners,
interstitials, sponsorships and other advertising.
Forrester’s report is the result of interviews with 50 top
marketers in the industry, as well as several dozen ad-technology and service providers.