JUPITER INTERNET ADVERTISING MODEL, 10/02 (US Only)

Copyright 2002 Jupiter Research

a division of Jupitermedia Corporation

INDEX
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JUPITER INTERNET ADVERTISING MODEL
Population Data
Overall Population
Online Population
Online Advertising Market
Spending
Metrics
Distribution by Pricing Scheme
Distribution by Media Format
Offline Advertising Market
Spending
Metrics
METHODOLOGY STATEMENT
Jupiter Internet Advertising Model

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JUPITER INTERNET ADVERTISING MODEL, 10/02 (US Only)

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2001

2002

2003

2004

2005

2006

2007

Growth
('02-'07)

106.9
284.8

108.1
287.4

109.2
290.0

110.3
292.5

111.5
295.0

112.7
297.5

113.9
300.0

1.1%
0.9%

Online Population
Households
Individuals

62.4
141.3

66.9
156.3

71.5
171.2

76.5
185.3

81.5
198.9

85.7
209.7

88.9
218.6

5.8%
6.9%

Online Penetration
Households
Individuals

58.4%
49.6%

61.9%
54.4%

65.5%
59.0%

69.4%
63.3%

73.1%
67.4%

76.0%
70.5%

78.0%
72.9%

Broadband Population
Households

10.4

15.7

21.4

26.7

32.0

36.8

40.7

Broadband Penetration
US households
Online households

9.7%
16.6%

14.5%
23.4%

19.5%
29.8%

24.2%
34.9%

28.7%
39.2%

32.6%
42.9%

35.8%
45.8%

$4,476
$1,061
$5,537
2.5%

$4,353
$1,242
$5,595
1.0%

$4,760
$1,436
$6,196
10.8%

$5,901
$1,648
$7,548
21.8%

$7,617
$1,884
$9,500
25.9%

$9,468
$2,114
$11,582
21.9%

$11,651
$2,343
$13,994
20.8%

21.8%
13.5%
20.1%

$2.60
-25.2%

$2.04
-21.4%

$1.93
-5.9%

$2.12
10.1%

$2.45
15.7%

$2.79
13.6%

$3.26
17.0%

9.8%

Online Spending as a % of Offline Market

3.1%

3.0%

3.2%

3.7%

4.4%

5.2%

6.1%

Spending Metrics
Online ad spending per online household
Online ad spending per online user

$89
$39

$84
$36

$87
$36

$99
$41

$117
$48

$135
$55

$157
$64

13.5%
12.3%

554
24.0%

610
10.0%

658
7.9%

718
9.1%

779
8.6%

808
3.7%

836
3.5%

6.5%

$1,909

$1,850

$2,017

$2,492

$3,206

$3,971

$4,870

21.4%

Figures in millions unless otherwise noted

POPULATION DATA
Overall Population
US Population
Households
Individuals
Online Population

21.1%

ONLINE ADVERTISING MARKET

Spending
Total Online Advertising Spending
Online Media Buys
Online Classified Spending
Total
Year-over-year growth
Metrics
Effective Online CPM
Year-over-year growth

Clutter
Marketing Impressions per Usage Day
Year-over-year growth
Distribution by Pricing Scheme
Media Spending by Pricing Scheme
Impression-based

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JUPITER INTERNET ADVERTISING MODEL, 10/02 (US Only)

Copyright 2002 Jupiter Research

a division of Jupitermedia Corporation

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2001

2002

2003

2004

2005

2006

2007

Growth
('02-'07)

$1,459
$1,108
$4,476

$1,361
$1,141
$4,353

$1,426
$1,317
$4,760

$1,690
$1,719
$5,901

$2,082
$2,330
$7,617

$2,463
$3,034
$9,468

$2,878
$3,903
$11,651

16.1%
27.9%
21.8%

42.7%
32.6%
24.8%
100.0%

42.5%
31.3%
26.2%
100.0%

42.4%
30.0%
27.7%
100.0%

42.2%
28.6%
29.1%
100.0%

42.1%
27.3%
30.6%
100.0%

41.9%
26.0%
32.0%
100.0%

41.8%
24.7%
33.5%
100.0%

Media Spending by Format

Conventional
Rich Media
Streaming
Total Online Media Buys

$4,258
$164
$54
$4,476

$4,015
$266
$72
$4,353

$4,254
$377
$130
$4,760

$5,051
$606
$244
$5,901

$6,143
$1,014
$460
$7,617

$7,018
$1,635
$814
$9,468

$7,644
$2,610
$1,397
$11,651

Distribution by Format
Conventional
Rich Media
Streaming
Total

95.1%
3.7%
1.2%
100.0%

92.2%
6.1%
1.7%
100.0%

89.4%
7.9%
2.7%
100.0%

85.6%
10.3%
4.1%
100.0%

80.7%
13.3%
6.0%
100.0%

74.1%
17.3%
8.6%
100.0%

65.6%
22.4%
12.0%
100.0%

Offline Advertising by Segment (bn)

Broadcast TV
Cable TV
Radio
Newspapers
Magazines
Yellow Pages
Direct Mail
Other
Total Offline Ad Spending
Year-over-year growth

$38.9
$15.5
$17.9
$44.3
$11.1
$13.6
$44.7
$39.6
$225.5
-6.4%

$41.2
$15.0
$18.6
$44.8
$11.0
$13.9
$45.9
$40.5
$230.8
2.3%

$43.7
$16.3
$19.7
$46.6
$11.6
$14.6
$47.8
$42.4
$242.7
5.2%

$47.0
$17.6
$21.2
$48.5
$12.3
$15.3
$49.6
$44.9
$256.3
5.6%

$47.8
$18.9
$22.4
$50.4
$13.0
$16.0
$51.4
$46.8
$266.5
4.0%

$48.8
$20.0
$23.6
$52.2
$13.5
$16.7
$53.1
$48.5
$276.3
3.7%

$49.7
$21.0
$24.6
$53.9
$13.9
$17.3
$54.8
$50.2
$285.7
3.4%

3.8%
6.9%
5.8%
3.8%
4.9%
4.6%
3.6%
4.4%
4.4%

Total without Direct Mail

Year-over-year growth

$180.8
-7.9%

$184.9
2.3%

$194.9
5.4%

$206.7
6.1%

$215.1
4.1%

$223.1
3.7%

$230.8
3.4%

4.5%

$1,691
$635

$1,711
$643

$1,785
$672

$1,874
$707

$1,929
$729

$1,980
$750

$2,026
$769

3.4%
3.6%

Figures in millions unless otherwise noted

Sponsorship
Performance-based
Total Online Media Buys
Distribution by Pricing Scheme
Impression-based
Sponsorship
Performance-based
Total
Distribution by Media Format

13.7%
57.9%
80.9%
21.8%

OFFLINE ADVERTISING MARKET

Spending

Metrics
Spending Metrics
Offline ad spending per household
Offline ad spending per capita

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JUPITER INTERNET ADVERTISING MODEL, 10/02 (US Only)

Copyright 2002 Jupiter Research

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JUPITER INTERNET ADVERTISING MODEL

To quantify the dynamic changes that Jupiter expects will take place in the online advertising industry, Jupiter built a complex
forecast model capturing current online activity in this space and 6-year forecasts of revenue. This model defines key growth levers,
market drivers, and inhibitors, giving clients a clear, analytical way to think about upcoming changes in their sector. Jupiter analysts
use a variety of quantitative methods in modeling the future, including close examination of analogous markets (either previous
growth of new technologies or relevant offline market case studies), consumer and executive intention surveys, scorecard analysis
of market drivers and inhibitors, complex market segmentation analysis, and analysis of historical trends. Additionally, all forecast
assumptions are rigorously debated and vetted by a large cross-disciplinary group of Jupiter analysts in a process designed to
capture the collective sensibility and experience of Jupiters entire analyst team.
As part of the forecast modeling, Jupiter develops comprehensive historical and base-year market size estimates based on a variety
of sources, including public financial documents, executive interviews, Jupiters proprietary primary consumer research, and
analysis of the vast Web site tracking databases of Media Metrix and AdRelevance.
All of Jupiter's forecasts are designed by a dedicated team of forecasting analysts within Jupiter's Data Research Group, who build
the models, conduct extensive industry research, and manage the process of formally building consensus among Jupiter's analysts.
Jupiter forecasting analysts have backgrounds in investment banking, management consulting, and market research where they
developed extensive experience with industry and company forecasting.
Definitions
Jupiter defines online advertising as a paid messagebased on a fixed-fee, CPM, or results-based modelfeatured on a Web site,
online service, or other interactive medium (e.g., IM or sponsored e-mail). Jupiter excludes creative costs, list rental fees, direct emailing, lead-generation fees, costs of Web site creation, and other forms of interactive marketing spending not directly related to
the purchase of advertising space from online publishers. The model also excludes barter transactions, given the inherent difficulty
in evaluating the true value of such exchanges.
The forecast model does not include advertising expressly developed for wireless and interactive television platforms. Although
these two segments are important in understanding the full interactive advertising landscape, the unique market dynamics of these
segments warrant that they are analyzed separately from the broader Internet environment.
Current Market Size
Jupiter used the following sources in determining the size of the current online advertising market:
Public financial documents. The primary source used to compile the current market size was the public financial filings of online
publishers. Jupiter aggregated revenue from the top 30 public online publishers and advertising networks and then discounted
revenue for barter transactions, international revenue, and revenue from non-advertising related activities (e.g., e-commerce and
technology services).
AdRelevance. To factor in revenue from non-public online publishers, Jupiter relied on impressions data from AdRelevances
online advertising tracking database. As confirmed by sources such as the Internet Advertising Bureau, smaller publishers garner a
small portion of total online advertising, making public financial documents the key determinant in Jupiter's market sizing.
AdRelevance was also used to derive base-year estimates of total online advertising impressions served.
Forecast Approach
In developing the forecast, Jupiter split growth expectations into near-term trends and long-term potential. To understand the nearterm trends, Jupiter examined quarterly growth rates in the revenues of online publishers as well as quarterly growth rates in overall
advertising impressions.
To determine the long-term growth potential of online advertising, Jupiter projected the amount of available ad inventoryonline
traffic that flows to sites capable of generating substantial online ad revenueand then applied CPM and sell-through rate
assumptions to determine actual revenue derived from these impressions. Specifically, the following growth levers were used to
calculate the long-term market size of online advertising:
Online population. The first lever in Jupiter's forecast is the size of the online audience. Expected growth in the online population
provides the most substantial boost to market size, with the online audience increasing from 141 million people at the end of 2001
2002 Jupiter Research
to nearly 219 million at the end of 2007.
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Time online per week. The next lever in calculating online ad inventory is number of hours of Internet
usage.STRICTLY
As users gain
familiarity with the Internet, and as Web ventures offer improved content, the value of the Internet to online consumers increases.
Jupiter expects that average hours of Internet usage per user per week will increase at a nearly six percent compound annual
growth rate through 2007, down from the high, double-digit growth rates experienced in recent years.

Forecast Approach
In developing the forecast, Jupiter split growth expectations into near-term trends and long-term potential. To understand the nearterm trends, Jupiter examined quarterly growth rates in the revenues of online publishers as well as quarterly growth rates in overall
advertising impressions.
To determine the long-term growth potential of online advertising, Jupiter projected the amount of available ad inventoryonline
traffic that flows to sites capable of generating substantial online ad revenueand then applied CPM and sell-through rate
assumptions
to determine
actual revenue
derived
from
these
impressions. Specifically, the following growth Copyright
levers were
used Research
to
JUPITER
INTERNET
ADVERTISING
MODEL,
10/02
(US
Only)
2002 Jupiter
calculate the long-term market size of online advertising:
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to Index]
Online population. The first lever in Jupiter's forecast is the size of the online audience. Expected growth in the online[Back
population
provides the most substantial boost to market size, with the online audience increasing from 141 million people at the end of 2001
to nearly 219 million at the end of 2007.

Time online per week. The next lever in calculating online ad inventory is number of hours of Internet usage. As users gain
familiarity with the Internet, and as Web ventures offer improved content, the value of the Internet to online consumers increases.
Jupiter expects that average hours of Internet usage per user per week will increase at a nearly six percent compound annual
growth rate through 2007, down from the high, double-digit growth rates experienced in recent years.
Page views per hour. To calculate total online traffic, Jupiter multiplies the number of online users by time online by an estimate of
page views per hour, based on Media Metrix traffic data.
Total advertising impressions. Using AdRelevance data on advertising impressions served, Jupiter calculated a ratio of ad
impressions per page view and projected this into the future. Jupiter expects this ratio to decrease slightly in coming years as
publishers attempt to reduce clutter by redesigning their interfaces to accommodate fewer, larger ads.
Effective CPM. To translate online ad inventory into actual revenue, Jupiter used the metric of effective CPM. Because most
publishers will only release rate card CPMs rather than actual CPMs earned, effective CPM provides a verifiable industry-wide
measure. Jupiter derives estimates for effective CPM by dividing total online advertising revenue by total impressions served in a
given period. We expect a 10 percent compound annual growth rate in effective CPMs through 2007 based on improvement in the
overall US economy, continuing online media consolidation, reduced clutter, improved ad targeting capabilities, growing ecommerce activity, increased broadband penetration (which allows for additional deployment of premium rich-media advertising),
and growing comfort among traditional advertisers with marketing online.
Clutter Index
To determine the number of commercial impressions an online user sees in an average usage day, Jupiter factored in online
advertising impressions, text links to commercial ventures (e.g., shopping channels), marketing e-mail messages, and page views
on commercial sites (e.g., content, commerce, or corporate). To calculate growth in clutter, Jupiter used its core advertising model
assumptions regarding the growth of online traffic and the total number of online advertising impressions.

Reproduction by any method or unauthorized circulation is strictly prohibited. Jupiter Research data and analysis are intended for the sole use of
clients. All data and projections are based on Jupiter Research's judgment at the time of publication and are subject to change. Copyright 2002
Jupiter Research

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