Online ads adding up

Ad spending is due to reach $2.57 billion in the year 2000, significantly higher than last year but still a small fraction of total ad dollars, according to a Cowles/Simba Information report to be issued tomorrow.

Although the report projects significant growth in total online ad spending, the report still questions the Web's long-term viability as an advertising medium.

Of the $2.57 billion spent in 2000, Simba expects nearly all of it to go to the Web instead of proprietary online services.

But unless standard Web site and demographic data becomes easily available, Web ad spending will continue to be but a sliver of what's spent on print and broadcast media, according to Simba researcher Matthew Kinsman.

In 1997, Simba forecasts that online ad spending will reach $538.2 million, up from $324.4 million last year. Of that, $446.2 million will go to Web sites.

Simba has a history of being conservative in its ad spending projections; it originally estimated that online ads brought in $171.5 million in 1996. But it has now increased its estimates for the year 2000 from $1.97 billion to $2.57 billion.

Simba bases its projections on the assumption that cheap Internet access will continue to create "exponential" growth in the number of users.

Web advertisers and the sites where they spend money are still heavily skewed toward the computer category, but as more women use the Internet, consumer products, automobiles, and pharmaceutical advertisers are increasingly common. Procter & Gamble, Kellogg's, and Sears have launched aggressive ad campaigns so far this year.

Other Simba findings include the following:

Ad spending remains concentrated in large sites; 17 sites (mostly search engines and computer sites) will account for 55 percent of spending this year.

Sites that appeal to male users, particularly sports sites like ESPNet SportsZone and adult sites like Playboy, have shown consistent ad revenue growth and drawn more mainstream advertisers.

Sports marketers and retailers will be the next wave of online advertisers.

News sites like CNN and USA Today Online will draw a growing number of mainstream advertisers and will show the biggest revenue increases in 1997.

Four interactive ad agencies dominated 1996 ad billings: Modem Media, DDB Needham, CKS Partners, and Anderson & Lembke.

Ad rates are still based primarily on how many people see an ad banner. The rates are measured at a "cost per thousand," or CPM, but Simba thinks CPM rates will hurt the medium in the long run because they discount the interactivity and immediacy of online ads.

Web advertisers aren't price-sensitive. Yahoo boosted its monthly ad rates 233.3 percent last year and saw its advertiser base grow 488.2 percent.