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Online Ad Spending Projected To Slow

While remaining healthy, online ad spending growth is expected to decrease steadily through 2009, a reflection of a maturing market.
While remaining a healthy market, online ad spending growth is expected to decrease steadily through 2009, a reflection of a maturing market, a research firm said Friday.

Organizations are expected to up ad spending by 33.7 percent from 2004 to $12.9 billion this year, according to EMarketer Inc.

The research firm increased its projections for this year following the strong earnings and revenues reported by Yahoo Inc. and Google Inc. in the first quarter. Before then, EMarket had predicted a 21 percent boost to just below $10 billion.

Following this year, however, online ad spending growth is expected to decline through 2009, following three years of steady increases, EMarketer said. From 2006 to 2009, spending is projected to increase by 21.2 percent, 14.1 percent, 13.5 percent and 10.4 percent, respectively. In terms of dollars, the increases amount to $15.6 billion, $17.8 billion, $20.2 billion, and $22.3 billion.

The declining growth was not unexpected, given how the online advertising market has so quickly moved from an $8.1 billion market in to 2000, EMarketer analyst David Hallerman said.

"No medium before the Internet had more than 32 percent increases (the growth for 2004) after it had been around for a few years," Hallerman said. "Runaway growth isn't all that good, since it could end up like the early years of the Internet -- hype."

Paid search is projected to remain the dominant form of online advertising, accounting for about 40 percent of spending by 2009. Rich media, which is the use of sound and video in advertising, is forecast to have the fastest growth rate, however, as companies use the technology to build brand awareness.

"Rich media is the best tool for any kind of online branding, and that's a key factor (for its projected growth)," Hallerman said.

Increasing broadband use among consumers is driving the use of rich media, which wasn't an option when the vast majority of consumers used dial-up connections.

"Broadband changes everything for e-commerce, advertising and people's general use of the Internet," Hallerman said.