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.