Internet Ad Spending Seen Not Keeping Apace - TheStreet

Online advertising is set to grow fivefold by 2005, yet most companies that market globally will be ill prepared to leverage the Internet to pitch their goods in a global marketplace, according to a study released Monday by

Jupiter Communications

, an independent research firm.

Total spending on advertising over the Internet will jump to about $28 billion worldwide by 2005 from $4.3 billion last year, Jupiter researchers predicted. Still, the increase in spending is less striking than it appears, since the number of online users is expected to rise in that period to 800 million from 300 million, according to Jupiter.

"I think it has little impact right now," said Sam Craig, a professor of marketing at

New York University's Stern School of Business

. The most successful online advertisers, such as

Microsoft

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, sell such products as personal computers and online services that are aimed at tech-savvy consumers. "It tends to be dominated by companies somehow related to dot-coms and the Internet," he said. "There are some things that 90% of people will never buy on line," such as toothpaste or bar soap, he said.

Predictably, technology companies spend far more on Internet advertising than consumer products companies. For example,

IBM

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spends 10% to 15% of its advertising ad budget online, while

Procter & Gamble

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spends close to 1%, according to Jupiter.

The bulk of online ad spending is from North American companies, with Western Europe and Asia lagging behind. For example, of the estimated $7 billion that will be spent on Internet advertising this year, $5.4 billion will come from North America, according to Jupiter.

While the statistics reveal the potential for the Web as a global medium for advertisers, there are significant hurdles to making the Internet a successful advertising vehicle, said Evan Neufeld, vice president of international research for Jupiter.

Perhaps the biggest challenge is how to reconcile the local with the global:

Coca-Cola

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commercials in New York, for example, are not the same ones on Chinese television.

Neufeld said advertising agencies and many of their clients had been slow to adapt to the Internet. He said agencies and advertisers needed to "reinvent" themselves if they wanted to take advantage of the potentials of the Internet. And some companies, he said, are haphazardly plowing money into online advertising. "A lot of it is not being spent in the best way," Neufeld said. "There are a lot of smart brands making dumb choices."

One open question is how much to charge and what to charge for. In conventional media -- television, radio and print -- advertising rates are related to the number of people exposed and demographics. "Some question in the Internet world whether that is the best approach," said Erik Gordon, a marketing professor at the

University of Florida

. Also unclear, Gordon said, is how to measure the effectiveness of online advertising.

"The dream of the Internet is to eventually have a high level of targeting," he said. While advertisers now hope to target certain segments of the population, the Internet will enable businesses to target individuals, he said. The question, he added, "is how to accomplish that without intruding on someone's privacy."

"I believe it's going to be a big medium, but it's going to take a long time to be effective for mass marketers," he said.