More Ad Spending to Shift Online

NEW YORK Web advertising is set to become a $26 billion market in five years, driven by advertisers following consumer media habits that are migrating online, according to new research.

Forrester Research forecast the U.S. online advertising and marketing spending will increase 23 percent this year to reach $14.7 billion. In five years, the Cambridge, Mass., research firm expects Web marketing spending to rival cable TV and radio, accounting for $26 billion, 8 percent of total ad spending.

Forrester Research also polled 100 national marketers on their online spending plans. It found 84 percent plan to increase their online marketing budgets in 2005, with 30 percent saying Web ad spending will rise 30 percent or more. Nearly half said the increase would come from a larger ad budget, but 42 percent said they would decrease other channels. Magazines, direct mail and newspapers were the most likely to be cut.

Charlene Li, a Forrester Research analyst, acknowledged that the survey respondents were not representative of the entire ad industry. "These are very advanced marketers in the online space," she said.

Still, Li said the survey data points directionally to increased confidence in the Web as a marketing channel. Nearly 80 percent of respondents said they expect search marketing to become more effective in three years, compared to 14 percent for direct mail, 7 percent for TV and 5 percent for newspapers.

"The dollars are going to follow where the marketers believe they will be the most effective," said Li.

About 63 percent said the Web was as good or better than traditional media at driving brand awareness—well below the high marks given online as a direct-response medium. Li said changing consumer media habits would drive advertisers to use the Internet as more than a direct sales driver, since consumers spend about 34 percent of their media consumption time online when work hours are counted.