Internet Advertising Soars to New Records on Both Sides of the Atlantic and a European Survey Shows Big Companies See Online Advertising As Critical to Their Campaigns

In the US the 2005 online advertising forecast is now $12.9 billion, up some 34% this year, and more than double the revenue of just three years ago. In the UK, where the entire advertising sector is forecast to grow just by some 3%, online is expected to pass £1 billion for the first time, and what is most worrying for newspapers and television in particular is that the online spend is by no means all new monies, much of it is transferred from traditional media spending.

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In the UK, this year’s phenomenal growth means that online advertising now represents about 5.8% of the total advertising spend, up from the projected 3-4% forecast by the Intertnet Advertising Bureau. Already by June of this year the UK Internet spend was more than double the entire Internet spend in 2003.

Jupiter Research, meanwhile, projects that European online advertising will nearly triple from the €2.3 billion in 2004 to €6.5 billion by 2010. It also predicts that paid search will overtake banners by 2008.

Jupiter says that while the UK is Europe’s largest Online market with 39% of European Online 2004 revenues, Germany is expected to start doing much better because of the Football World Cup being held there in 2006. Jupiter predicts that German Online revenue will increase by 22% each year through 2010.

A major reason for the online advertising increase is the uptake of broadband. In the UK, for instance, broadband uptake has doubled in the last year. In the US, according to Nielsen Net Ratings, broadband is now available to about 42% of the population.

Internet spending in the US hit a record in Q2 at $2.985 billion, the 10th consecutive quarter of growth. Search makes up about 40% of the spend. And while newspaper publishers would give almost anything to have those kinds of numbers, instead of their basically stagnant advertising revenues, there is a silver lining in all of this for newspapers.

Recent statistics from Nielsen/Net ratings report that in many markets the top information online site belongs to the local newspaper. The good news, therefore, from Borrell Associates is that the local advertising community is about to unleash a boom of advertising to local sites that could last for several years. Borrell’s research shows that local newspapers already dominate local advertising, capturing a 41% share.

And while national online sites like Monster.Com and Realtor.Com have tried to really bite into a newspaper’s classified advertising, Borrell has found that they are getting only about 15.3% of the local online spend.

The bad news, however, is that much of that local online spend could come at the expense of existing print advertising, and $1 of print advertising is usually worth around 35 cents on the web.

“There is no doubt that local advertisers, after a long game of wait-and-see, have finally begin shifting significant portions of their ad budgets toward online media, The capability of online media to offer highly targeted advertising to local businesses is going to wreck havoc with traditional media,” according to Kip Cassino, director of research at Borrell.

It is not just newspapers that will suffer great pain. David Verklin, CEO of Aegis Group’s Carat Americas, predicted at a recent trade conference that advertisers over the next three years will shift some $40 billion from their television advertising budgets to digital media.

The European Interactive Advertising Association, in a survey this month, emphasizes just how important online has become to the major advertising campaigns of Europe’s biggest companies. The survey showed that 81% of respondents believe the Internet is a vital part of their company’s total advertising strategy; 88% say that the increasing broadband penetration makes online advertising more attractive, and that the online share of their total spend will significantly increase over the next two years.

And the survey also reinforced the general trend that more online money will go into search rather than display ads. The respondents said their online spend will increase significantly over the next three years, and in line with the US forecast, as much as 40% of that additional online spend could come from the television budget and about 20% will come from print.

There can be little doubt that after some considerable hesitation companies the world over have decided the Internet phenomenon is here to stay, and what’s more their message works well on the medium at a relatively low entry cost.

And while the Internet spend is only around 5-6% of the total advertising spend in many countries the question that must keep publishers and televisions managers awake at night is how much of that additional Internet spend will come out of their pockets?