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May 04, 2005

U.S. online marketing forecast: $26 billion by 2010

By Charlene Li

It’s finally done – the online ad sizing report that I’ve been nursing along for the past few months. You can find it here (available for Forrester clients only) but I’ve included the official Forrester press release below which contains the major highlights and data points. Stories are also available at wsj.com, Click Z, and InternetWeek.

There’s so much in the report that I’m usually asked to summarize a few of the key points, so here’s my stab at the top three.

  • This is not the return of “The Bubble”. The growth is coming from marketers having to make tough decisions about allocating scarce advertising dollars – in many cases, funding online channels from traditional channels. Back in 1999/2000, spending often came from exuberant spending, fueled by venture money.
  • It’s more than just about search. Search is great, it’s growing, but it’s not the whole story. In fact, I anticipate that search will become much more integrated into traditional brand advertising – witness what Google and Yahoo! are doing in terms of tying CPM- and CPC-based products into the same ad ordering system.
  • Marketers will shift channels away from traditional channels to fund online marketing. The key is perceived effectiveness -- most marketers saw traditional channels like TV and print becoming less effective over the next three years. Given the pressure marketers face to make every dollar count, they will shift spending to channels they believe are more effective. But note: this doesn't mean a wholesale flight away from traditional media -- I think it's more of an adjustment in the marketing mix that takes into account the greater time and influence Internet use plays in our lives.

And here’s the press release:

Forrester Research Releases US Online Advertising And Marketing Forecast – Market To Reach $26 Billion By 2010

Survey Finds That 84 Percent Of Marketers Plan To Increase US Online Ad Budgets In 2005

Almost half of marketers plan to decrease spending in traditional advertising channels like magazines, direct mail, and newspapers to fund an increase in online ad spending in 2005. Total US online advertising and marketing spending will reach $14.7 billion in 2005, a 23 percent increase over 2004. According to a new five-year forecast from Forrester Research, Inc. (Nasdaq: FORR), online marketing and advertising will represent 8 percent of total advertising spending in 2010 -- rivaling ad spending on cable/satellite TV and radio.

“Despite significant changes in consumer behavior, there is a large disparity between the amount of time consumers are spending online and the money marketers are spending trying to reach them online,” says Forrester Research Principal Analyst Charlene Li. “When at-work Internet use is taken into consideration, online consumers spend more than one-third of their time online -- roughly the same amount of time they spend watching TV. Yet marketers spend only 4 percent of ad budgets online versus 25 percent on TV.”

While marketers surveyed believe that online advertising channels, such as search engine marketing, online display ads, and email marketing will continue to become more effective relative to traditional channels, barriers that include a lack of online advertising standards and hands-on experience have kept marketers from fully embracing online channels.

The report includes data from an online survey of 99 leading marketers and four forecasts: US Online Advertising And Marketing Spending, US Search Marketing Spending, US Online Classifieds Advertising, and US Email Marketing Spending.

Key data points include:

- Search engine marketing will grow by 33 percent in 2005, reaching $11.6 billion by 2010. Display advertising, which includes traditional banners and sponsorships, will grow at the average rate of 11 percent over the next five years to $8 billion by 2010.

- The only nondigital advertising channel to reach the same level of confidence as online channels with marketers is product placement -- only 8 percent of respondents believe that product placement will become less effective over the next three years.

- Marketers are quickly losing confidence in the effectiveness of traditional advertising channels and feel that online channels will become more effective over the next three years. Seventy-eight percent of survey respondents said they think search engine marketing will be more effective, compared with 53 percent of respondents who said TV advertising would become less effective.

- New advertising channels will draw interest and spending from marketers. Sixty-four percent of respondents are interested in advertising on blogs, 57 percent through RSS and 52 percent on mobile devices, including phones and PDAs.


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Rebecca Povio

Charlene - just purchased the report today. Great stuff - very informative. There's only one aspect of these reports I don't get, which I see as a common thread among all online ad spend reports; they continue to lump "search engine advertising" with "contextual advertising".

Do you have any notion on what contextual ad spend might be separate from search engine marketing spend?

Rebecca Povio
Marketing Manager

Charlene Li

Rebecca: You make a very good point. In the forecast, we break out contextual listings separately, but I wrestled with where to put them. They are NOT by definition search advertising, but they are clearly today bought as an extension of search. With Google's announcement around site targeting and CPM-based contextual ads, we'll see contextual ads (graphical and text) changing in their nature. I anticipate that next year we'll be sizing both types of contextual ads and putting them in a new category -- just to make things even more complicated!!


$26 biilion is almost 10% of total advertising industry. Taking into account that ever effective newspaper and radio advertising account for about 20% each, the projections seem a little optimistic.

Mary Schmidt

As always, good data and interesting insight from Forrester. (I always found room in my budget for your services when I was in Corporate America). But...I’m already blocking pop-ups, automatically skip Flash intros, click “no thanks” to “special offers” (no matter how teensy or vague they make that button) and ignore Google ads…so how is this money going to be effective? Interesting time to be a marketer!

Burma Shave signs, anyone?

Deana Poston

I was reading over a newspaper article (May, 29, 2005) about online dating services and if they should have to offer background checks screening services. I work for a company that offers individuals the ability to purchase their own background check and to give others the excess to view it. These are all up to date and accurate county court criminal search no databases used. Since my mother uses online dating services and I have no idea if the people she is speaking or meeting with might or might not be a sex offender or have a criminal background, I would like a way for her to be able to see verification that the person has had a clean past record. Do you know of who else I should speak to help get background checks out to the public especially those using the on line dating services?

Brian Maloney

It certainly does lend a little bit of credence to all the people who are crying fraudulent clicks on the part of the giant google. They need to streamline the process a little better and quit trivialising and start uncomplicating the entire ppc process.
I have had nothing but heartache with the entire format of adwords from start to finish and with the contextual, it doesn't seem to get any easier. I will say this for them though, they sure do know how to make a buck. Who knows, maybe they'll buy time warner or something next!

Jeffrey DeArmond

Online Contextual Media is a meaningful specific way to reach consumers when they express an interest related to any product or service. Contextual Online Media does exactly that by reaching consumers at the point of e-research or e-purchase. For example, if a consumer uses the Web to find a power table saw on a major home improvement home site, Black and Decker could be immediately displayed to the user with informative rich media and content and "oh yea" e-commerce. This level of relevance benefits advertisers and consumers alike; as consumers can receive offers that save them money and time. Advertisers can reach audiences predisposed to their products and services at key moments in their research or buying process.

I have understood Search Engine Marketing for the last 3 years, -
This year I love contextual online media. This is the most sophisticated way to brand and increase e-commerce, not to mention increase brick store revenues substantially. (COM) Contextual Online Media is where I know big things will happen.

Jeffrey DeArmond
VP Sales
Contextual Integrated Online Media
Cell: 727-278-6295


It cannot be overlooked, goog doesn't even share knowledge with their partners how much they received for a respective click. Yet, they call themselves a reputable outfit with no diclosures. This will inevitably come down to a court fight, probably in the supream court and spin off massive lawsuits towards goog eventually because of non-disclosure and the inability to quality control what you are receiving from them in rev share online.
Kind Regards,

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