Online Advertising Likely To Grow

March 7, 2003
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GRAND RAPIDS — As Internet advertising goes, so goes business for a small Grand Rapids-based interactive advertising and marketing firm.

And in 2003, business is expected to pick up for both Adtegrity.com International Inc. and the online advertising industry.

After two years of decline, driven by a combination of the soft economic conditions and the dotcom bust three years ago that scared away traditional advertisers, Internet advertising is expected to rebound in 2003.

Research reports say online advertising this year will begin to gain more acceptance in the marketplace as a regular piece of the advertising portfolio of large traditional advertisers.

Likewise, Adtegrity.com President and CEO Scott Brew expects a growing number of traditional advertisers to begin increasing their use of online advertising in the coming years as companies grasp a better understanding of how to use the medium to promote and market their goods and services.

“The reality is that guys who control $100 million advertising budgets, they’re spending that money on known quantities. When they’re approached with a new medium, they very understandably take it real slow,” Brew said.

“Serious advertisers are spending more money and time (on online advertising) because they’re learning more about it and they’re learning how to spend their money.”

As that understanding grows, according to Jupiter Research, an Internet and technology research firm, traditional advertisers “provide the greatest online ad spending opportunities for ad sellers in the near term.”

With a growing number of people accessing the Internet, and with research data showing the Internet delivering the same kind of product recognition and recall results as traditional ad mediums, marketers who’ve shied away from online advertising need to take another look, said Patrick Keane, Jupiter’s vice president and senior analyst.

“The Internet has come to resemble offline media because of the growing number of regular online users. Marketers need to realize the value of this market and begin to evaluate the long-term benefits of online advertising,” Keane said.

Jupiter projects a 10 percent increase this year in online ad spending from what it estimates was $5.6 billion in 2002. Jupiter Research forecasts online ad spending to further rebound in the following years and grow steadily to reach $14 billion by 2007.

Expected to lead the renewed online advertising push are the automotive industry, which spends about $1.8 billion on online ads, and the health and travel industries.

Another research firm that follows emerging Internet and technology trends, eMarketer Inc., sees online advertising spending rebounding at a faster rate in 2003 than overall advertising spending.

After a two-year slide from an estimated peak of $8.23 billion in 2000, to $7.21 billion in 2001 and $6.3 billion in 2002, online ad sales should grow 6.3 percent in 2003 to $6.7 billion, according to a recent eMarketer Inc. research report on media spending.

EMarketer expects online advertising spending to reach $7.2 billion in 2004 and $8.1 billion in 2005, just below the peak of the Internet bubble in 2000.

Driving the forecasted growth are the expectations of an improved economy and traditional advertisers shifting their media dollars more toward online advertising.

“In contrast to the steady decline seen in U.S. online ad spending over the past two years, 2003 will mark the beginning of a new era of interactive marketing,” eMarketer’s report states.

Even with the projected growth, online advertising will still remain a comparatively small percentage of total ad spending in the near term, growing from 2.5 percent in 2003 to 2.8 percent in 2005, according to eMarketer.

Jupiter sees online ad spending growing from 2.4 percent to 3.4 percent of total ad spending by 2005.

At Adtegrity.com, Brew is pursuing future growth based on the notion that online spending is a good supplement to a broader advertising strategy that includes several media.

“That’s where we get the traction, the understanding that online is a great way to supplement the offline message and the offline exposure,” Brew said. “It doesn’t beat all the other forms (of advertising) but it should be in the mix.”

That changing mix should help Adtegrity.com, which recently reported improved financial performance toward the end of 2002, although the three-year-old firm still finished the year with a loss.

For the fourth quarter, Adtegrity.com posted net income of $83,491 on revenues of $1 million. That represents a 24 percent increase in revenues and 131 percent improvement over earnings of the previous third quarter of 2002.

On the year, Adtegrity.com recorded a net loss of $26,630 on annual revenues of $3.1 million. That compares with net income $118,417 on revenues of $3.8 million the prior year.

Brew attributed the 2002 loss to the down economy and efforts to reposition the company to expand its ad network and focus on high-margin business. The company recently added an East Coast sales representative and plans to establish personnel in Chicago and the West Coast.

“We feel pretty good about where we’re at,” he said of the company’s future prospects.           

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