Big growth predicted for online ads

Goldman Sachs (GS) surveyed more than 40 Australian traditional advertisers for a report on the state of play for Australian internet companies. The report highlighted the broad themes and factors impacting the online advertising market.

Despite the slump in online advertising in the third quarter and the softness in dot-com advertising post-April, traditional advertisers will increase online proportion of advertising spend from 1 per cent in 2000 to 2-3 per cent in 2001 on average, claims GS.

The US online advertising market has grown at a triple digit pace over the past three years. GS estimates that the Australian online advertising market will grow at a five year compound average growth rate (CAGR) of 73 per cent from $44 million in 1999 to $680 million in 2003. By which time online advertising will represent 6.8 per cent of total advertising spending in Australia.

GS believes the internet, as an advertising medium, provides most of the benefits of advertising on TV. As bandwidth continues to improve, the quality of online advertising advertisements will approach TV standards.

In addition to offering the branding capabilities of TV advertising, online advertising provides much greater accountability and targetability. It is often near impossible to measure the branding effect and return on investment (ROI) of TV campaigns, GS claims. Online advertising can produce detailed ROI information offline media cannot provide.

The key focus for internet advertising has been click through rates based on the concept that the internet has finally allowed accountable advertising. Audience measurement companies that measure click through rates, enable many agencies and properties to accurately measure users' activities on a site and interaction with banner ads. This arms the advertisers with the knowledge of the appeal of their product or service to a subset of the broader market.

GS believes that click through rates, in isolation, are not an accurate measure of a campaign's ROI. GS believes that the tools used to measure accountability will become more sophisticated.

The report outlines some of the key themes emerging in the internet advertising industry: the strength of a network or property's sale force; advertisers focus on broad reach or target niche markets; online advertising is part of an integrated campaign; new online market techniques, such as pop-up displays or e-mail marketing; cost per thousand page impression (CPM) rates and click through trends measurement.

GS delineated a major challenge that the online advertising industry faces both here in Australia and around the world. A majority of Australian traditional advertising agencies and media buyers do not actively promote the use of the internet as an advertising medium for their clients. Despite this trend, there are now a few specialist firms focused on internet advertising. GS sees this as a major challenge, because they believe that online advertising will be better than TV advertising with the improvements to bandwidth to come.

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