Demand for online ads could surpass supply in the near term
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McKinsey research finds that bottlenecks in supply could limit the pace
of online ad growth and raise prices over the next 24 months. The study
also suggests that a dearth of ad agencies that can manage both
traditional and digital campaigns and the
absence of a widely accepted independent metric for digital media (such as
the NielsenTV ratings) could further slow the shift in spending
to online ads.
Spending for online ads reached $12.5 billion in the United States in 2005, up from $10 billion the previous year. By contrast, spending for traditional ads totaled $220 billion in 2005. By some measures, consumers already focus upward of 30% of their media attention online—a far higher proportion than advertisers currently spend there. |
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The maximum supply of video ads is currently about $600 million a year—far less than future demand, which McKinsey expects to reach $1.4 billion to $3.2 billion in 2007. Annual growth in the overall number of searches is slowing, from 30% in 2004 to 20% in 2005. The maximum current value of paid-search advertising is estimated at about $7 billion, while McKinsey estimates that advertisers will want to spend $9 billion to $12 billion on paid search in 2007, up from around $5 billion in 2005. Finally, although the inventory of banner ads—$4 billion to $8 billion—appears more than sufficient to accommodate the likely demand of $2.5 billion, advertisers probably won't be interested in much of what's available. Advertisers currently direct 96% of their spending for online display ads to pages that represent just 30% of overall Web traffic. |
