IDG News Service —
Online advertising will balloon in the coming years, becoming bigger than all advertising media except direct marketing by 2012, according to IDC.
Spending in U.S. online advertising will double from US$25.5 billion in 2007 to $51.1 billion in 2012, along the way climbing up from the fifth-largest to the second-largest ad medium and dwarfing newspapers, cable and broadcast TV, IDC said Friday.
Overall spending in U.S. advertising is expected to decline by about 7 percent this year compared with 2007, which means that online advertising is fueling its growth with ad dollars previously destined for "old" media, said IDC analyst Karsten Weide.
"The big story here is that Internet advertising is growing strongly at the expense of traditional media," Weide said. "Old media ad budgets are getting moved online."
The compound annual growth rate for U.S. online advertising will be almost 15 percent between 2007 and 2012, three-and-a-half times faster than the overall ad market, he said. Although this growth represents a slowdown from previous years, it is still impressive compared with the overall ad market and considering current economic challenges, Weide said.
The reason for this reallocation of ad budgets to the Internet is that marketers are becoming increasingly convinced that online advertising is generally more effective, because it can be more precisely targeted to audiences and because it's easier to track its return-on-investment, among other reasons, he said.
In particular, marketers will take advantage of emerging formats like online video, which will see its ad spending shoot up sevenfold from $500 million in 2007 to $3.8 billion in 2012, a compound annual growth rate of almost 50 percent for that time period.
The very fast growth of online video advertising will be one of the most interesting developments in the market in the coming years, Weide said. Right now, no one rules in online video advertising, so it's an opportunity up for grabs, he said.
Although Google's (GOOG) YouTube is by far the largest streamer of online video clips, it hasn't been able to translate that into a comparably large revenue flow. This is because most of YouTube's content is generated by individual amateurs, and large brand advertisers are generally distrustful of associating themselves with videos that are often unprofessional and of questionable taste, he said.
YouTube's monetization problem isn't likely to improve soon, and in the meantime sites like Hulu.com, which focus on professionally produced TV and movie content, are in a much better position to take advantage of online video advertising, Weide said.
