Revenue from e-mail advertising will nearly triple this year,
according to a soon-to-be-released research report that highlights a
little-noticed hot spot in an otherwise cold market for online
Forrester Research estimates companies will spend $1.1 billion on e-mail
marketing services this year, up from $400 million in 2000. Comparatively,
sales of banner ads, buttons, sponsorships and display marketing will fall
by 18 percent, down to $6 billion this year from $7.6 billion in 2000, the
A second report from research firm Gartner, expected this week, offers a
more encouraging estimate of $7.9 billion in overall ad sales--down marginally from $8 billion last year, according to the Interactive
Advertising Bureau (IAB), an industry trade group. Unlike Forrester's
breakdown, Gartner's estimate includes revenue from classified advertising
and e-mail marketing.
The rapid growth in e-mail marketing has come from traditional online companies, which are increasingly choosing third parties to
host their customer e-mail promotions. Companies benefiting from the trend
are not Web publishers but ad and marketing companies such as Digital
Impact, DoubleClick and a raft of dot-coms that run such services.
Market analysts have long predicted e-mail would become an increasingly
important marketing tool for businesses. Jupiter Media Metrix estimated in
a recent report that marketers will spend more on digital marketing such as
e-mail and sweepstakes than on Web advertising by 2006, for a total of $19.3
The IAB, which publishes annual ad sales figures in conjunction with
auditor PricewaterhouseCoopers, last month said U.S. Web advertising sales
for the first half of the year equaled $3.76 billion. By that measure, if
sales remained flat as some financial analysts expect,
the market would be worth about $7.5 billion this year. The IAB recorded a
7.8 percent decline in sales in the first half of the year from the
Denise Garcia, analyst and author of the Web advertising report from
Gartner, said a new breed of online advertisers evolving from the dot-com
bust has caused growth rates to slow but not stop. Still, the market hasn't
been hit as hard as traditional advertising because it's
continuing to mature. It's still "a very small market, representing only 3
percent of the entire advertising industry" at $250 billion annually,
"Some of these online companies are using a slowdown in the entire
advertising industry as an excuse for not making their numbers, but I think
they haven't budgeted correctly or they miscalculated the size of market,"
Garcia said. "This is good news for the online advertising
market but bad news for companies that thought that this market would
continue growing at double-digit rates."
As a result, analysts say that Internet ad sales will not likely gain
momentum again until the overall ad industry takes a turn for the better.
Next year, Forrester expects ad sales to increase by 5 percent to $6.3
billion, down from earlier projections of $7 billion. Jim Nail, senior
analyst at Forrester and author of its report, said he doesn't expect a
rebound in the market until 2003.
"It depends on how you define rebound. I don't expect the market to have
much more than 12 percent to 13 percent growth rates year over year from
2003 on," said Nail, adding that the rates eclipse annual growth for traditional marketing at 4 percent to 5 percent.
"It's going to be a slow dawning for marketers regarding the Internet," he
added. "It has more to do with psychology than technology at this point. A
change in psychology will happen brand by brand, company by company, fueled
by better research and pressure from competitors."
He said traditional advertisers comprised 60 percent of the market this
year and are expected to equal 72 percent next year.
In contrast, Gartner's Garcia says that the industry will likely see a
turnaround after the second quarter of 2002.
Looking forward, Gartner estimates the market will be worth $18.8 billion
in 2005, propelled by rich media and broadband advertising. It also
reported that the landscape of advertisers will change from dot-com and
technology companies to traditional advertisers such as automakers
and consumer packaged goods companies by 2005.
Meanwhile, Forrester predicts that in 2005 the Web advertising market will
hit sales of $9.1 billion. That figure is only half of the digital
marketing industry comprising e-mail and interactive TV advertising.
Forrester sliced the e-mail market into two areas: customer communications
and opt-in e-mail list services. Sales for list and newsletter advertising
are expected to slightly increase from this year to next, reaching $220
million in 2001 and $223 million in 2002. Sales in customer communications
will climb from an expected $1.1 billion in 2001 to $1.8 billion in 2002.
"Even in the face of all that growth, many companies still run their e-mail
campaigns in-house, which we think will change over time," Nail said. "But
as much demand as there is for these services, it's very competitive
because it's a pretty low-barrier-to-entry business."
Parsing out the numbers, Nail takes a positive view of online
advertising in 2001.
"I think 2001 was a successful year for online. If two-thirds of
advertisers in 2000 were dot-coms, and we all know that the vast majority
of that evaporated this year, the fact that the industry is down only 18
percent--not by 40 percent or 50 percent--is a miracle," he said. "By all
rights it should have been a whole lot worse."
Gartner's projections are based on financial reports and interviews with
the top 20 sites selling online advertising, as determined by
Nielsen/NetRatings from May 2000 to April 2001. It projects this group
represents 80 percent of the marketplace. Gartner includes in its estimate
sales of e-mail, banners, interstitials, sponsorships and other advertising.
Forrester's report is the result of interviews with 50 top marketers in the
industry, as well as several dozen ad-technology and service providers.