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GUEST COLUMN: Geoff Ramsey

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Looking back and looking ahead

In early 2000, as I was working on the latest eMarketer projections for the online advertising market, I got word of a new corporate giant. It had an ungainly name. Maybe you remember it: AOL Time Warner.

With a pen stroke, Gerry Levin of Time Warner and Steve Case of AOL created the fourth-largest company in the world in terms of market capitalization. The deal came on the heels of a three-year period that saw online advertising ring up triple-digit percentage increases each year.

Like most analysts, I knew that the rocket-booster pace of the previous years' growth could not possibly be maintained. "The year-to-year increases seen in 1997 and 1998 are not sustainable," I wrote.

But-and again, like most analysts-I didn't foresee the powerful downturn and retrenchment of 2001 and 2002. Nor did I anticipate the broad slowdown of the U.S. economy.

Now that the smoke has cleared from the boom-and-bust cycle, it's interesting to see what we got right, what we got wrong, what has changed and what hasn't.

Advertising: Curiously strong growth

In 2000, I expected online advertising spending growth to cool as the medium gained size and maturity. Instead, the market went through a painful contraction in 2001 and 2002, so our projections for market size turned out to be far too optimistic.

It's interesting to look at growth rates, though: In 2000, eMarketer projected that growth would scale back to 30% in 2003 and to 20% in 2004. Our latest measures, which are benchmarked against Interactive Advertising Bureau-PricewaterhouseCoopers data, show that online ad spending grew 20.9% in 2003 and 32.5% in 2004.

The downturn in 2001 and 2002 was so pronounced and prolonged that when the online ad market did turn the corner, it accelerated rapidly, making up for time lost to the bust.

In essence, the downturn warped the normal maturation process of a new market. Growth was put on hold during economic and geopolitical struggles. That created a pent-up demand, which, like a geyser, "blew" in 2003 and 2004. And it shows no signs of letting up in 2005, either-eMarketer is projecting spending growth will be even faster this year than last, reaching nearly 34%.

Right now, eMarketer expects 2005 to be the high-water mark, in terms of growth rates, with annual increases slimming back to a sustainable, but still very healthy, 10% by 2009, when we expect online ad spending to reach $22.9 billion.

Search marketing explodes

What's most striking about our (and everyone else's) ad spending outlook in 2000 is the low profile of search marketing. In the space of five years, this category has erupted into the largest single online ad spending vehicle.

The growth arc of search marketing raises interesting questions about the future. Is some barely tapped category poised to explode, forcing us to radically revise our thinking about the future?

Two trends are worth watching.

One is behavioral targeting. The potential is enormous, the obstacles many. Will users grow more comfortable with sharing personal information on the assumption that the resulting marketing messages they receive will be more relevant-and hence less intrusive? Or will they continue to use new technologies to erect new barriers to marketers?

The other trend is fragmentation. Will audiences continue to splinter into ever more narrow groups? Will the "disaggregated" content of countless sites around the globe be corralled into a powerful marketing vehicle?

The speed question

In 2000, eMarketer predicted that by 2003, some 39.7% of Internet users would access the Net via broadband. The actual figure came in at 40% for 2003. Not a bad call.

However, some of our underlying assumptions were off the mark. At that point, eMarketer was forecasting rapid growth among users with fiber access. Fiber remains a fringe technology for most of us, at least in the U.S. (although Verizon is making a big bet on fiber.) We also expected DSL to overtake cable as the dominant access platform in 2003. Deployment and service issues have slowed the uptake of DSL in the U.S., while it dominates in every other major broadband market around the globe.

Ubiquitous e-mail

In 2000, we estimated that 43.3% of the U.S. population, or 96.6 million people over the age of 14, used e-mail-a number we expected to grow to more than 140 million by 2003.

E-mail has become so pervasive that we no longer estimate the number of users.

But here's a number to make you nostalgic: In 2000, we estimated that the average user received a whopping 15.2 e-mail messages per day. Sounds like the good old days.

Geoff Ramsey is CEO of eMarketer, which aggregates and analyzes market research information related to e-business, online marketing and emerging technologies from more than 1,700 sources.

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