Digital advertising budgets to rise 20 percent this year: sponsored links on search engines to grow rapidly, report says

San Diego Business Journal, August 4, 2008 by Richard Gincel

The recent headline on Adweek.com was certainly compelling: "Will Economic Downturn Sink Digital?" But perhaps the answer was a bit too obvious. The ensuing chorus among advertising insiders, analysts and bloggers familiar with the surveys anchoring the article was loud and clear: of course not.

The July 18 article mentioned "mixed signs" for the online ad industry. Yet by many accounts, signs are good, if not downright rosy, compared with the dismal outlooks casting shadows over other industries.

One key report in July came from New York City-based JupiterResearch LLC, which issued its U.S. Online Advertising Forecast: 2008 to 2013. It predicted that U.S. ad spending online will grow nearly 20 percent in 2008 to $23.8 billion, and that spending will grow at a 13 percent compounded annual growth rate to $43.4 billion in 2013. Jupiter calculates that the entire advertising industry in the United States amounts to $224 billion.

Meanwhile, search-related ads, sponsored links on Google or Yahoo for example, are cited as the largest growth sector.

Michael Greene, the report's lead analyst, noticed a significant shift in how companies are allocating budgets by moving advertising dollars from traditional formats to online.

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"Consumers are spending more time online. Online retail and direct response advertising have been the backbone of ad spending for many years," Greene said.

A shift in the years ahead, he says, will mean fewer dollars from industries in decline, such as the real estate and financial sectors, but likely more revenue from big brands such as Procter & Gamble or Miller Brewing Co.

Squeezing Out A Profit

As the Internet increasingly becomes an entertainment outlet--a place where consumers watch television and play interactive video games--traditional companies are seeing more branding opportunities on a larger scale than just display ads, analysts say.

"Times are lean, which means something's going to end up getting squeezed," said Ken Wells, creative director at San Diego's Alchemy Design Group, noting that slower growth does not mean a decline. "It's all about the smarter use of funds. We're almost strictly online strategic partners. Ninety percent of our clients do all marketing online, and that's an increase from years past. We ourselves have pushed it that way."

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No one is asserting that online ad channels aren't immune to economic challenges. However, the potentially high return on investment in relation to the relatively low cost of entry seems to be fueling its momentum.

"In economically uncertain times, the Internet offers a highly measurable ad medium," Greene said. "You can track down to the search word and down to the purchase. It's easier to measure this stuff. And everyone's concerned now about getting the most for their dollar."