Cheaper rates boost online advertising

A wider variety of firms are advertising online

Cheaper prices meant that more advertisers took the plunge and experimented with online advertising last year.

There is encouraging growth in online advertising but in many cases the revenue is not going to be enough to sustain content-based sites

Rebecca Ulph, Forrester Research

While the economic slowdown saw the UK's overall advertising market decline by 3.4% in 2001, the internet sector grew by 28%.

"Online remains the one bright spark in a dull marketing economy," said Rebecca Ulph of internet analysts Forrester Research.

But a closer look at the figures reveals that the rate of growth has slowed significantly.

And some analysts suspect that the enthusiasm for internet ads is partially due to the fact that it is a cheap way to promote brand when times are tough.

Time to experiment

The UK's online advertising market accounted for £122m (190m euros) last year, making up about 4% of the UK's total marketing spend.

And while Forrester estimates that internet advertising will continue to grow, it is likely to be at a much steadier pace than during the boom years.

Online advertising spend in 2001

UK - 190m euros

Germany - 145m euros

France - 92m euros

Source: Forrester Research

A growth rate of 28% is small fry compared to the 134% growth seen between 2000 and 1999.

Forrester's research found that far more firms headed into the online market but that the average spend on each online campaign decreased.

"It's really been a year of experiments," Ms Ulph told BBC News Online, adding that a number of case studies helped a wider selection of firms believe in the internet as an effective marketing tool.

The price collapse for online advertising was partially caused by the realisation that people did not bother to click on banner ads.

But consumer giants such as Unilever, McDonalds and Procter & Gamble discovered that brand awareness was improving even if clicks were not being generated, explained Ms Ulph.

Permanently lower

It is always difficult to sell advertisements when the economy is slowing down.

Advertisers are typically more concerned about shifting goods from shop shelves than they are about building a brand name.

The online world was hit doubly hard since the demise of the dot.com sector meant many companies were also radically cutting costs.

This led to the cost of banner advertisements declining sharply, squeezing internet portals and websites which rely on the ads as their key revenue stream.

"It's a reasonably permanent state of affairs," said Ms Ulph, referring to the lower prices.

"There is encouraging growth in online advertising but in many cases the revenue is not going to be enough to sustain content-based sites."