Online Advertising – The Demand Supply Equation

Filed Under: McKinsey research, Online Advertising,

McKinsey research reports that the rising demand for online ad vehicles could surpass supply in the near term.

Few startling facts from the report:

Dearth of Ad agencies might escalate the supply problem.

Video ads lags the most – present supply is $600 million a year—far less than future demand, which is expected to reach $1.4 billion to $3.2 billion in 2007.

Advertiser are skeptical of putting their ads in smaller web sites – inspite of the fact that the bigger/heavy traffic sites charge a premium for listing ads (advertisers currently direct 96 percent of their spending for online display ads to pages that represent just 30 percent of overall Web traffic)

Very few Ad agencies are able to handle both Digital and Traditional advertising

Annual growth in no. of searches have decreased (from 30 percent in 2004 to 20 percent in 2005)

According to the report: Spending for online ads reached $12.5 billion in the United States in 2005, up from $10 billion the previous year. By contrast, spending for traditional ads totaled $220 billion in 2005.