Towards the end of 2004, people's minds were centered on the question of what 2005 will bring. It’s now 2005, but unfortunately it’s too soon to answer that question. What can be known though is how the industry fared in 2004. The answer as most people already know is that the industry fared quite well. Throughout the year, many reports tracked the progress of online ad spending. Most of those estimates peg online ad spending for 2004 around $7.5bn to $8.5bn dollars. How much is spent for advertising online comes down to not just how many people are online but also perhaps how well integrated the internet is into their lives. There are many ways to gauge the latter, but one of the more interesting and seasonally appropriate is looking at how much money the internet users themselves spent online.
The roughly $8bn spent for online advertising in 2004 represents a 30% increase from the previous year’s total, and is significantly greater than the 5% growth seen for the other areas of ad spending. Similarly, consumer spending online also grew by upwards of 30% in 2004, hitting a record of close to $9bn during the holiday season alone. What that number suggests, besides overall improvements in sites’ ability to service market needs, is that people are more comfortable spending money online. If people are comfortable spending money online, that suggests not only that they are comfortable being online, but have integrated the medium into their lives. That could explain why internet advertising growth outpaced the percentage growth of new internet users. User adoption and integration could be the key trend that ultimately drives growth.
A sign that internet integration has increased comes from an unlikely source, the recent natural disaster. December 26th’s tsunami, unimaginable in its scope and resulting devastation, helped show not the power of the internet but the value of the internet. In the wake of the disaster, the internet not only spread word of the events but was doing its part to help, and in ways not possible in other mediums. This is illustrated in two examples. The first example speaks to the internet’s ability to spread information, the second people’s ability to act on information.
Among those impacted by the tsunami were tourists vacationing in places such as Thailand’s Phuket Island. In one instance, a young boy’s parents died, and he was in a foreign hospital with those taking care of him not knowing his nationality or the language to speak to him. His grandfather in Sweden saw the picture of the boy, and they were able to be united. Without the internet, the ability for this boy’s to be found by his family might not have happened, and if it did, it could have easily taken weeks or even months, not days. The amount of time saved along with the emotional pain saved is remarkable.
The second example of the value of the internet relates to financial aid. As people use the internet for information, arguably the internet’s chief value proposition, users can take immediate action. Amazon.com, for example, placed a link to the American Red Cross on its page in the wake of the disaster and by midday in the first day of doing so, they had raised $8 million dollars. That users could, within a few clicks, act on the information they saw, that millions could be raised in a matter of hours all by the placement of a simple link, i.e., no additional costs or time needed, really displays the value of the net. Users gave points to the increased level of comfort and adoption – all of which wouldn’t have happened as quickly or in such scale several years ago.
Ultimately, it’s the value of the internet that drives our market opportunity. In 2004, online ad spending mirrored very closely not only the total amount spent by users online during the holiday season but also the percentage growth rate. It will be interesting to see how these numbers compare for future years. As can be inferred, online ad spending is really the result of a wide variety of factors. Trying to find real-time insights into those factors can hopefully prove to be more than an academic exercise but one that will help signal areas of interest and opportunity for 2005 and beyond.
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