Spending on online advertising surpasses TV, report says

Everyone knows that online advertising keeps growing and growing. But according to a report being released today, it's growing so fast that in 2008 it is projected to surpass ad spending on TV, radio and movies combined for the first time ever. 

To be sure, Outsell Inc., based in Burlingame, Calif., tallies the numbers a little differently. It counts the money companies spend on their own websites as part of their advertising budgets, because websites are ostensibly used for marketing. Its data indicates that companies are expected to spend $105.3 billion online in 2008, which beats the $98.5 billion they’re projected to spend on TV, radio and movies. But that isn’t quite as much as the $147 billion they’re likely to spend on print media, up 12% from the previous year.

Much of the report is pretty wonky, unless you’re interested in tracking cost per lead and conversion rates, whatever those are. But the overall picture is interesting. For instance: online advertising is expected to grow 12.3% in 2008, but much of that money will be spent on companies’ own websites, rather than on marketing agencies or search or display ads. That’s not good news for advertising agencies, said Chuck Richard, Outsell’s lead analyst.

“For more than decades, media companies have been the channels for advertisers to reach audiences,” he said. “Suddenly companies don’t rely completely on them.”

The 1,088 US-based companies surveyed will spend $61.5 billion, or 61.8% of their online advertising and marketing budgets, on their own sites, siphoning away money from other options, he said.

The report does predict that advertisers will still spend the most money on print media in 2008 – but it’s not a shining ray of hope for the newspaper industry. Companies will spend 35.5 percent of their budgets on print media in 2008, and will spend nearly a third of that on newspapers. That’s down 4 percent from the previous year.

--Alana Semuels

Semuels, a Times staff writer, covers marketing and the L.A. tech scene.

Photo: Ad spending online is approaching ad spending in print. Credit: Mark Lennihan / AP

Comments

[Jason Baer]

An interesting report, and the first one I can recall that includes Web site development in the advertising total. I'm not sure I agree with that methodology, since it's akin to counting spending on storefronts as a marketing expense.

Either way, "conversion rate" which you unfortunately didn't delve into much, is indeed the coin of the realm in online marketing. Getting a larger percentage of your Web site visitors to do what you want them to do on your Web site (buy now, call now, email signup, etc.) is a critically important metric that companies are starting to study extensively.

Optimizing your conversion rate through a more effective and persuasive Web site is actually the most efficient marketing tactic available, as your return on investment is geometric, not linear. If 100 people come to your Web site, and 2 buy something, that 2% conversion rate is just okay (industry standard for e-commerce is 3-5%). But, if you can get 4 out of 100 to buy, you've doubled your revenue with no additional costs to bring more people to your site. Powerful stuff.

[brian robinson]

Digital media has blurred the lines between print, radio, TV and the web. Why shouldn't it blur how these media are budgeted and bought ?
Long ago, in a universe far away ( 1998-99 ) web companies like Amazon, eBay, Yahoo and AOL were big ad spenders in print, TV and radio to drive subscription and user bases. Within 2 years they themselves became ad carriers. Today, with broadband penetration approaching cable, the very definition of what is a TV spot is breaking down as video accomplishes the same function, only its online. Alana Semuels' take on the Outsell study captures an essential truth about the digital media world; its all coming out of the same budget pot....so let the games begin!

[Conrado Murguia]

Hmm... "unless you’re interested in tracking cost per lead and conversion rates, whatever those are"... the very thing that makes online advertising different. Semuels, you are way off base. Accountability, that´s the difference between traditional advertisemente versus online. You can´t measure the impact of traditional media with the accuracy you can measure online media. Tracking can be done all the way, from impressions thru sales.
Please, before you get your opinion on print, do some research.

[Frank Pournelle]

I disagree that you can't make accountability from offline media or that pay for performance only occurs online. Cost per Lead (CPL) has been known in the TV and Radio business as Per Inquiry. Now all those great DRTV folks are finding big returns with Web Video. If you're interested there's Case Studies available at http://www.lastsecondmedia.tv/webvideosyndication.php

[Mike]

Then I guess you need to include the money that companies spend on ad development, otherwise it is not an apples to apples comparison?

[Online Advertising Network]

In 1920 majority of shareholders sold their stake in Ford because they insisted the auto industry had reached its peak. Maybe they were right in light of the events with the Big 3 recently.

Many are saying that Online Advertising has reached its peak already.

Major trends follow the S-curve where it takes 50% of the time to reach 10% of the market and the same amount of time to reach 90%.

With that logic, online advertising is now at 8-9% of all marketing budgets. It would be a strong indicator then in the next 10-12 years it will be 90%.

We are about to witness a major shift and transfer of wealth. Which side will you be on?

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