Just how big is Internet advertising, really?

ZenithOptimedia delivered some good news to the online industry on Tuesday. It estimates that the value of Internet advertising will more than double to Rs 450 crore by the end of 2007, and will be valued at Rs 2,250 crore by the end of 2010, increasing 10 times over current numbers. This means it will overtake spends on radio, cinema and outdoor advertising in two years. While the report is bullish in its forecast for the Internet, it remains silent on how this will be achieved.

The report adds that of the Rs 210 crore spent on Internet advertising in 2006, display advertising contributed Rs 117.6 crore, classified was Rs 50.4 crore and search was Rs 42 crore. It estimates classified advertising to be the key driver of growth with a Rs 900 crore contribution (out of the total Rs 2,250 crore) by 2009, followed by search’s Rs 742.5 crore, and display advertising bringing in Rs 607.5 crore.

Yet, it is difficult to believe that online advertisers, a reluctant lot, will change their mind enough in two years to multiply their spend by 10.

Vyas believes that this growth will be led by performance-based marketing and search. However, he adds, “Mobile advertising looks like a dark horse. Given the right ecosystem for advertisers and mobile operators, it could get big.” That’s food for download. It is a well known fact that mobile penetration is growing much faster than the Internet in India, and advertisers follow the masses. It is quite possible that mobile advertising in the coming years may overshadow online spends.

Another issue that could curtail this growth is the lack of quality content, especially in regional languages. Localisation has worked well for mobiles, but the Internet is slow to follow. Even in English, it is tough to find original, engaging content, discounting the larger multinational portals. Here, a parallel can be drawn with the print medium, where content is everything. Publishers will need to ramp up content to build up numbers.

Kumar’s estimate is that Internet advertising will be valued at about Rs 350 crore by the end of 2007. He also thinks that the existing online advertisers need to increase their spends to at least 2-5 per cent of their ad budgets for there to be significant growth.

In fact, it is not just the vertical, but also the horizontal growth of advertisers that is needed. The industry is yet to tap into FMCG, automobile and consumer goods companies, for instance. Says Anurag Gupta, managing director of dgm India, “Advertisers from the telecom, retail and commerce categories are expected to come online in the next few years. I think performance advertising will exceed brand advertising.” He expects Internet advertising to grow to between Rs 1,300 crore and Rs 1,500 crore by 2010, with search advertising and display advertising sharing a ratio of 40:60. About ZenithOptimedia’s forecast, Gupta says, “It’s quite bullish. The growth rate could be between 60 to 70 per cent.”

Not everyone is as conservative, though. Manish Vij, co-founder and business head, Smile Interactive Technologies, thinks that the figures are quite attainable. “The new targeting technologies are letting online agencies give accurate numbers to their advertisers. More time is being spent on the Internet and the fact that it is a measurable medium should help it grow,” he says. He expects the Internet population to increase to 80 million in the next few years. He expects advertising from FMCG and SME (small and medium enterprises) sectors to grow fastest.

The reactions to a Rs 2,000-plus crore online industry swing between vehement denial and strong agreement. As things stand, scepticism rules for an industry that has been around for at least ten years, and is yet to deliver convincing numbers.