Forrester reports shift to online ads

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The majority of marketers plan to increase their online advertising budgets over the next five years as they find the medium more effective than traditional media, according to a report released last month by Forrester Research.

The report, titled "U.S. Online Marketing Forecast, 2005-2010," projects that online ad spending will reach $26 billion by 2010, about 8% of total U.S. ad spending.

Last year, online ad spending in the U.S. totaled $9.6 billion, according to the Interactive Advertising Bureau, representing 6.8% of total U.S. ad spending of $141.1 billion, as reported by TNS Media Intelligence. This year, 84% of marketers surveyed said they will increase their online ad budgets, Forrester found.

The report was based on surveys and interviews with 99 major marketers, 20 vendors and four online portals. About 35% of marketers were b-to-c, 29% were b-to-b and 37% market to both audiences.

When asked how they would fund the increase in online ad spending, 47% said they would boost overall ad budgets, 29% said they would increase overall budgets and decrease spending in other channels, 14% said they would keep their overall ad budget flat but decrease spending in other channels, and 10% said they didn't know.

Included among those marketers decreasing spending in other channels to fund online advertising, 11% said they would decrease magazine spending, 8% would decrease direct, 7% would decrease newspaper spending, 5% would decrease radio and 5% would decrease TV spending.

"I don't think it's anything to be alarmed about," said Vickie Szombathy, Starlink Worldwide VP-media director, who also serves as chairwoman of the b-to-b committee of the American Association of Advertising Agencies and chairwoman of the media advisory board of American Business Media. "It simply reflects smarter planning," she said. "Online is part of the normal consideration set for all media for all of our clients." Starlink's clients include Caterpillar, Heidelberg and X-Rite, a color management company.

"Clients have a better understanding of where customers are going for information, and they are learning how to use those elements," Szombathy said.

Difference between time and money

The Forrester survey found that users are spending more time online, and the increase in online ad spending is beginning to reflect that. However, there is a still a discrepancy between media consumption and ad spending in different media. The report found that consumers and business users spend 34% of their media time online, yet online spending made up only 6.8% of all ad spending last year.

In contrast, consumers and business users spend about 32% of their media time watching TV, yet TV spending made up more than 40% of overall ad spending last year.

"The way the customer is getting information today is through the Internet," said Shar VanBoskirk, Forrester analyst and report co-author. "B-to-b marketers are getting a lot smarter about using the Internet for lead generation."

When asked how effective online advertising and e-mail were compared with traditional media, 91% of respondents said online was more effective at driving traffic to Web sites; 62% said it was more effective at delivering promotions; and 60% said it was more effective at generating leads.

However, when it came to raising brand awareness, only 24% of respondents said online was more effective than traditional media, while 37% said online was less effective and 39% said they were about the same.

"The greatest driver influencing the online increase is simple proof that it works, and greater demand for accountability in marketing investments," VanBoskirk said.

Forrester also asked respondents to break out their online ad budgets. Search engine marketing will receive the greatest share (36%) of budgets this year, followed by e-mail (20%), display ads on nonportal sites (15%), display ads on portals (13%), affiliate or referral advertising (7%) and other (9%).

By 2010, search engine marketing will generate $11.6 billion, display ads will generate $8.1 billion, online classifieds will generate $4.7 billion and e-mail will generate $1.7 billion, Forrester projected.

The report also asked respondents to rate their interest in using emerging interactive channels for advertising. Sixty-four percent said they were interested in advertising in blogs, 57% said they were interested in RSS and 52% said they were interested in mobile advertising.

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