U.S. Advertising Will Reach $43.4 Billion in 2013

Seemingly immune to the effects of an economic downturn, spending on online advertising continues to see strong growth, according to a new report from market analysis firm JupiterResearch -- expanding by almost 20 percent in 2008 to reach $23.8 billion. The firm's recently released "U.S. Online Advertising Forecast, 2008 to 2013" predicts that the industry will power along at a 13 percent compound annual growth rate (CAGR) over the next several years. Offline spending, by contrast, may be feeling the effects of the economic slowdown, with Jupiter predicting a much more modest 4 percent CAGR for that segment. 

According to the report, 8.4 percent of advertising budgets in 2007 were spent online -- a figure expected to reach 14.3 percent by 2013, a growth that attests to the increasing shift of dollars away from traditional media. Paid search continues to represent the largest category of online spend, and is expected to grow from $9.1 billion in 2007 to $20.9 billion in 2013, according to the report.

"Growth," however, won’t necessarily be defined by an increase in the quantity of ads, according to Jupiter's predictions; rather, with companies such as Google enforcing measures like Google Quality Score, low-quality ads -- the ones that lead to pages with little or no  value -- will be weeded out, improving the overall search experience, but increasing the cost per click on higher-quality ads. 

Perhaps the most exciting area of growth, says Michael Greene, research associate at JupiterResearch, is in the display market, with a 14 percent CAGR. Jupiter defines the display-ad market as including such media as:

• static banner ads;
• text ads;
• Google AdSense;
• interactive banners; and
• video ads.

Growth in display advertising, though, may be slow in the short term, particularly from the financial services sector, where the economic troubles have taken a heavy toll on advertising budgets. Greene anticipates that it will take a couple of years before that sector rebounds in terms of its online advertising spend.

The report also notes that, as metrics become ever more critical, the shift online provides a more accountable method for advertisers to validate their spending, a method driven by return on investment (ROI). 

Despite the inherent benefits of online advertising, Greene says, offline isn’t disappearing anytime soon. Still, old-school media such as television and print are definitely feeling the pressure. "The four major networks are struggling a bit," he says. In an attempt to compensate for the declining audience views, ABC, CBS, NBC, and Fox have made online distribution available to their advertisers, with video ads and streaming content online. Video spending is expected to more than quadruple from $0.7 billion in 2008 to $3.4 billion in 2013. "This is a major opportunity for publishers and advertisers," Greene says, especially as the Internet becomes increasingly more relevant to consumers as a source not only of shopping and communication, but of entertainment as well.

Greene says that even networks that have opted to keep their programs on the television screen are assessing the situation realistically, devising better packages for advertisers. "There hasn’t been any proof yet that you can target these ads in a more effective way online than you would on television -- and nobody’s really buying that way yet," he says. Advertisers are also exploring deeper content integration with product placements during a program in a way that feels natural and more authentic, Greene says, with NBC publically pushing for this strategy. (One show on the network's fall schedule, for example -- an update of the 1980s-era Knight Rider -- is at least partially underwritten by Ford; the automaker is integrally involved not only in the show's marketing, but in its development, providing the car central to the show's narrative.)

Innovative approaches along these lines, Greene says, may help address the issue of ad-skipping online and with systems like DVR.  

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