December 23, 2003, 12:00 AM

Online advertising set for strong recovery, driven by paid search

Online advertising has made a strong recovery form the depths of last year and could match 2001’s level, says a new study from researchers eMarketer Inc. However, all of the growth from 2002-2003 is due to paid search.

 

Online advertising has made a strong recovery form the depths of last year and could match 2001’s level, says a new study from researchers eMarketer Inc. Online advertising this year will reach $6.9 billion, up 15% from last year and 3% off 2001’s $7.1 billion. It’ll be at least another year, however, before online ad spending reaches the high-water mark of 2000, when advertisers spent $8.1 billion. All of the growth from 2002-2003 is due to paid search.

EMarketer`s new “Online Ad Spending: More Money, More Choices” report says the 2005 level of $8.5 billion is significantly ahead of its earlier predictions. Here’s the industry as eMarketer sees it (in billions of online ad spending):
2000: $8.1
2001: $7.1
2002: $6
2003: $6.9
2004: $7.8
2005: $8.6
2006: $9.3
2007: $9.9

“The forecasted growth rests largely on search`s shoulders,” eMarketer says. eMarketer predicts paid search will jump from 15.2% of total online advertising spending in 2002 to 34.5% in 2005, with most of that growth occurring this year.

"The dark side of paid search emerges from its hypergrowth--and the media and industry hype surrounding search," says eMarketer senior analyst David Hallerman. "Today`s sharp gains for search could well be unsustainable. There`s no denying that paid search is effective. Yet at the same time, a sizeable share of the ad money put into paid search is stealing from budgets potentially allocated to other effective forms of online advertising, such as rich media."

Subtracting paid search from the spending equation, total US ad spending in the first half of 2003 actually dropped by 14.7% compared to 2002`s first half. EMarketer reports:
First half 2002: Total ad spending: $2.98 billion; paid search, $238 million; total without search: $2.74 billion
First half 2003: Total ad spending: $3.29 billion, up 10.5% from 2002 H1; paid search, $955 million, up 300%; total without search: $2.34 billion, down 14.7%.

 

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