Local Online Promotions Poised To Overtake Internet Ad Spend By 2012: Borrell

Online display ads have steadily been losing their luster over the past two years and are expected to hit a peak of $12.6 billion in ad spending in 2008, according to a report being released Tuesday by local online advertising analyst Borrell Associates. After this year, Borrell says display will begin declining to half that amount over the next four years. The report, which posits that the real growth story in internet marketing expenditures is going to be increasingly focused on online promotions, also suggests that paid search is also headed for a decline. Its peak will come next year when it reaches $16.9 billion, followed by a gradual decline. Local ad spending lags national by two years, so Borrell suggests that the growth of pop-ups and banner ad spending will fall into negative territory by 2010. Other highlights from Borrell’s 39-page report, Online Promotions: The Big Shift, include:

Web-based promotions grow: Online promotions – the use of sponsorships, discounts, coupons, rebates, contests – came in at $8 billion in 2007 – roughly the same amount spent on e-mail advertising, but well below the spending on paid search and banners. Borrell says that will change by 2012, as promotions spending approaches $22.8 billion, surpassing all other forms of traditional online advertising. The shift will be driven by a perceived inability of traditional media and even online media to provide enough ROI to marketers. So, while Borrell isn’t saying that internet ad revenues won’t remain healthy, just that they will face greater competition from the promotional side as companies find initiatives like contests and coupons are more apt to lead to immediate sales.

Online follows offline: Last year, local businesses spent $806 billion on advertisings and promotions. Roughly $323 billion went toward traditional ads, while nearly 60 percent went toward promotions. That balance isn’t present yet when it comes to online, however. So, Borrell reasons, as total marketing budgets tilting even more toward these “non-advertising” activities during the next five years, the online space is likely to follow.