Advertisers are well on the way to spend $21.4 billion on the internet in 2007, according to eMarketer’s new online ad spending report, “US Advertising Spending,” which also projects that by yearend 2011 spending on online advertising will reach $42 billion.

eMarketer also projects that US online advertising’s share of total media ad spend will more than double, from 6% in 2006 to more than 12% share in 2010 - and more than 13% in 2011.

The amount of online ad spend per internet user is also growing and will, this year, for the first time surpass $100 per user, eMarketer also said; and, by 2011, advertisers are expected to spend nearly double that amount online per user.

One big trend is that the nation’s largest advertisers are shifting more of their budgets from traditional media to the internet, according to eMarketer:

• Among Advertising Age’s “100 Leading National Advertisers,” 69 allocated a smaller share of their total ad budgets toward the four traditional measured media - TV, radio, newspapers and magazines - in 2006 than in 2005.
• 58 of those advertisers both decreased their spending share on the four traditional media and increased the share going to the internet.
• Combined, the 100 top advertisers spent nearly $230 million less on the traditional four media in 2006 compared with 2005, while boosting internet ad spending by $558 million.

Search, display and classified ads account for the largest advertising share of Internet spending, according to eMarketer’s projections for the 2006-2011 period:

• Paid search’s share of online ad spend will continue to hover in the 40% range through 2011.
• Display ads (such as static banners) will generate about 20% of internet ad revenues through the decade.
• Classified ads, including those on newspaper sites and in places such as eBay, Monster or HotJobs, will contribute about 17%.
• Rich media, which includes video advertising, will rise from 8% share this year to over 13% in 2011.
• Social-networking advertising numbers, currently being revised by eMarketer, are expected to increase from $900 million in 2007 to $2.5 billion in 2011.

While the current total media ad spending forecasts reflect economic anxiety, a downturn will also affect online ad spending - but less so, according to David Hallerman, author of the report:

• In contrast to the 26.7% growth projected for internet advertising in 2007, total media ad spending will increase only 2.1%.
• Mainly because of the credit crunch and related economic fallout, internet ad spending will not increase as much in 2007 and 2008 as analysts previously expected. However, reduced spending will be tempered by advertisers buying the low-cost display advertising gobbled up by mortgage companies’ shrinking marketing budgets.
• As a highly accountable ad format, paid search are likely to get more of the mortgage companies’ shrinking budgets than display ads.

The nation's largest advertisers increased their share of spending on the Internet while simultaneously reducing spending in traditional advertising channels. The ad spend report, released this week by eMarketer, forecasts $21.4 billion in online advertising spending in 2007.

The report observes 68 of the top 100 advertisers, as ranked by TNS Media Intelligence, decreased spending on traditional channels including TV and print, and at the same time those advertisers have increased the share of their budgets going to the Internet.

"When you look at the largest advertisers in the U.S., they are still only putting about 3.5 percent of their total ad budgets online. However there are indications they are moving more online," said eMarketer Senior Analyst David Hallerman.

Like ad spend reports from other research firms, eMarketer reduced its previous projection of the U.S. Internet spend from $21.7 billion to $21.4 billion in 2007. The online ad spend is expected to reach $42 billion by 2011, with continued growth through that time.

Categories within the online channel are expected to see little movement. "In terms of search, it will remain at about a 40 percent range for a number of years," said Hallerman. The report finds search will represent 41.1 percent share of online this year, 42 percent in 2008, and is expected to reach 43 percent in 2011.

Display ads, in the form of banners, are forecast to take 21.5 percent of online's share of spending in 2007, 21.5 percent share next year, and 20.7 percent share in 2011. Rich media spending will hit 6.8 percent this year, 6.7 next year, and back to 6.8 percent in 2011. Dollars spent on rich media are estimated at $775 in 2007. Other categories covered include classified ads, referrals, e-mail, and sponsorship.

Unmeasured dollars reach into the billions, according to Hallerman, due to the money spent by marketers to build corporate Web sites, video, and word-of-mouth type campaigns. He said brand marketers can, in some cases, engage an audience on their Web sites better than paid media. He also points to video posted on corporate Web sites and on video-sharing sites on YouTube. The Dove brand is examples of using viral video to spread a message.

The economic climate has driven mortgage companies and others in the financial sector to pull ad dollars from their budgets. Hallerman said the financial services sector has contributed about 15 percent of the Internet ad spend. Other sectors are taking up some of the slack. Hallerman attributes the uptake to the proven measurability of search, and even with display, where they have an idea of where the impressions are going.

eMarketer reports contain aggregate numbers from other research firms.

Fourth quarter will decide.

"Growth in Britain's marketing industry has been strong overall, and some sectors have seen record gains," said Karin von Abrams, senior analyst at eMarketer. "Online spending in particular is robust and expanding.

"But the impact of recent turmoil in the financial markets should not be underestimated, especially in the UK," Ms. von Abrams said.

The Web accounted for more than 6% of all UK marketing spend in the third quarter of 2007, according to NTC. The company also found that more than 40% of companies allocated at least 5% of their total marketing spending to the Internet.

As recently as June 2007, the Internet Advertising Bureau UK, PricewaterhouseCoopers and Wilkofsky Gruen Associates predicted that UK online ad spending would reach $9.9 billion by 2011.

"Marketing budgets tend to be cut quickly in response to changing business conditions, so the strength of the Q3 survey suggests that marketing spend held up well in the face of the current financial turmoil and that the real economy remains so far largely unaffected," said Chris Williamson of NTC Economics, in a statement.

"However, it will no doubt take some time for the full effects of the banking crisis to be felt, so it is likely that these strong Q3 numbers represent a peak in the current cycle," Mr. Williamson said.

eMarketer shares the view that advertisers are a little cautious as a result of financial market uncertainty.

"In fact, we picked up signs of growing uncertainty in the early summer, and our existing forecasts for 2008 and 2009 reflect this change of mood," Ms. von Abrams said.

eMarketer's 2011 UK online ad spending projection is $1.7 billion lower than the IAB UK figures.

"It is encouraging that growth in the industry in Q3 remained strong and appears to be unaffected by the upheaval in financial markets," said Moray MacLennan, chairman of UK-based ad trade group IPA and chairman of Europe at M&C Saatchi, in a statement.

"The data for Q4 will be key in revealing the extent to which recent economic news has affected marketing budgets," he said.

Internet advertising revenues (US) for the first six months of 2007 were nearly $10 billion - up some 26% from $7.9 billion in the first half of 2006 - and yet another new record, according to the “IAB Internet Advertising Revenue Report” from the Interactive Advertising Bureau and PricewaterhouseCoopers.

Internet advertising revenue totaled nearly $5.1 billion in the second quarter of 2007 - for the first time exceeding the $5 billion mark in a quarter, IAB said; that was a 25.4% increase over the equivalent period in 2006, as well as a 4% increase from the $4.9 billion in the first quarter of 2007.

Search revenue accounted for 41% of 1H07 revenues, consistent with the equivalent period in 2006. Display advertising, the second-largest format, accounted for 32%, followed by Classifieds (17%) and Lead Generation (8%).

Other findings from the IAB/PwC report:

• Consumer-related internet advertising spend is still the largest category, accounting for 54% of 2007 second-quarter revenues, up from 49% for the equivalent period in 2006.

• Financial Services, the second-largest category, accounted for 15%; Computing advertisers followed with 11%.
• Within the Consumer category, the largest sub-categories in 2Q07 were Retail (46%), Automotive (21%), Leisure (13%) and Entertainment (9%).

• Online advertising remains concentrated with the 10 leading ad-selling companies, which accounted for 70% of total revenues in the second quarter of 2007.
• Companies ranked 11-25 accounted for 12% of revenues, and those ranked 26-50th accounted for 9%.

• Some 50% of 1H07 revenues were priced on a performance basis, up from 47% reported in 1H06.
• Some 45% of 1H07 revenues were priced on a CPM or impression basis, down from 48% for the same period in 2006.
• Some 5% of first half revenues were priced on a hybrid basis, unchanged from the equivalent period in 2006.

The full report from PwC/IAB is available here.