10 key predictions for 2007

eMarketer’s 10 Key Predictions for 2007

JANUARY 2, 2007

What to watch for in 2007….

• Online Ad Spending Will Hit $20 Billion
• Some Money and Lots of Hype for Online Video Advertising
• Social Networks Are Set for a $1 Billion Windfall
• Downloadable Games Will Get Hotter
• Thirty-Seven Million Strong: A ‘Minority’ Bigger than Canada
• Mobile TV Arrives
• US B2C E-Commerce Will Cruise Past $200 Billion
• The Retail Power of Word-of-Mouth
• Broadband Services Will Matter as Much as Speed
• DVRs Pump Up TV Viewing

Online Ad Spending
Total US spending on Internet advertising will reach at least $19.5 billion in 2007. This is 19% more than total spending in 2006. This rate of growth is sharply down from the 30% or more that has been the norm for several years. However, even this reduced level of year-on-year growth would be considered spectacular for most industries. With total US advertising spending projected to grow by a mere 1.4% in 2007, the shift to the Internet is clearly set to maintain its heady momentum in 2007.

Online Video Advertising
Internet video advertising will get more media play than dollars in 2007. eMarketer projects that spending on this format will total $775 million in 2007. To put this figure in perspective, remember that it represents only 4.0% of projected US online ad spending. Although marketers are increasingly keen on including video in their online ad campaigns, they will continue to face a shortage of appropriate premium placements.

Social Networks
Worldwide ad spending on online social networks should top $1 billion in 2007, up from an estimated $445 million this year. Fueling this growth will be factors such as international expansion, “niche” networks and Google’s deal to supply search technology to MySpace.

Video Game Downloads
Digital downloading of video games will take off in 2007, and by 2010 this distribution method will account for 22% of all worldwide game software revenues. Besides online stores pushing the new generation of games consoles, look for Time Warner’s GameTap service to position itself as the HBO of PC gaming, focusing on original content to drive its subscription service. Video-on-demand (VOD) marketers may find their skills in demand for promoting these platforms, which play on subscriber taste for instant gratification via download.

Hispanic and African-American Internet Users
The number of African-American and Hispanic Internet users in the US will rise to 37 million, from 35 million in 2006. This market will continue to grow faster than the total US online population for several more years, giving advertisers with the imagination to reach out to them fresh opportunities. (The population of Canada is 33 million.)

Mobile TV
Mobile TV took its first baby steps in 2006 with professional content. The World Cup offered a first glimpse of what the broadcasting future for mobile might look like, and in 2007 another crucial element will be added to the mobile-TV mix — user-generated content (CGC). Given the impact the Web equivalent of this development has had in 2006, advertisers and marketers are likely to face a dizzying array of new choices.

US B2C E-Commerce
US B2C online sales will comfortably pass the $200 billion mark in 2007, reaching a new record total, which eMarketer projects will be $223 billion. Online retail sales will account for $132 billion of this, with online travel accounting for $91 billion. Some of the impetus for this growth will come from existing online buyers increasing their spending. A significant force driving online travel sales is the demand from travel-loving and relatively affluent baby boomers.

Word-of-Mouth
The influence of consumer generated content (CGC) on US consumers’ purchase decisions will continue to grow in 2007. A recent study from market research firm Compete found that consumers were more likely to be swayed by CGC than by information coming directly from brand advertisers and marketers.

Broadband Services
When broadband emerged, it was distinguished from dial-up by its always-on nature and the greater bandwidth available to users. These characteristics were seen as reason enough to trade up from dial-up. Now, however, broadband is about value-added services and is driven by providers bundling voice, video and data together. Services such as voice over Internet protocol (VoIP) are approaching the 30% penetration range. eMarketer predicts that one in four broadband households in 2007 will subscribe to a VoIP service, rising to nearly 40% of broadband households by 2010.

DVRs and TV Viewing
The alarmist claims that digital video recorders (DVRs) and video-on-demand (VOD) would cause the death of TV and the loss of billions of dollars worth of advertising dollars are increasingly looking just plain wrong. TV distribution and access are changing and audiences are increasingly fragmented. However, every challenge presents an opportunity. More people will watch more TV and video content in the future, not less. They will just be doing so in different ways — via the TV, the Internet, the PC and their portable devices. eMarketer predicts that VOD will be in 30% of US TV households by the end of 2007 and that DVRs will be in 30% of TV households by 2009.