Attendees at the opening session of the Ad:Tech San Francisco meeting seemed stoked to hear some good news about the intersection of marketing and the online world, and they got it from a long-time Internet cheerleader: Mary Meeker, managing director of investment bank Morgan Stanley.
Meeker, a notable bull on all things Web-related back in the dot-com boom of the 1990s, said that analysts had always predicted that the companies enabled by the Internet would undergo a “boomlet” in wealth creation, followed by a bust, followed by a full-fledged boom. “And that’s what we’re seeing,” she said, pointing out that the five largest companies on the Web — Google, Yahoo, eBay, Yahoo Japan and Amazon.com — went from $178 billion in market value in March 2000, to $32 billion in October 2002, and have now hit $197 billion in capitalization.
Meeker said a number of factors lead her to believe that Internet companies are in for another bout of wealth creation. She pointed to broadband penetration, which reached 25% of U.S. households in 2004 and is expected to reach 50% by 2011. When industries that are on a fast growth trajectory get to the 25% point in their adoption curve and are headed for 50%, that is the ‘sweet spot’ for the industry to make money in the market and really have impact,” she said.
The user experience of the Internet is also improving exponentially, Meeker said, due largely to tech innovations. She pointed out that Yahoo alone has launched as many products so far this year as it did in all of 2004 — and that schedule was three times that of 2003. Meeker said the evolution of eBay reflects one basic truth of the Internet: that as users, namely the buyers and sellers, become more knowledgeable, the marketplace improves. The same spiral will play out in search, she said: as users become more sophisticated about seeking relevant results and as advertisers and search engines collaborate to produce them, query volumes, sales conversions and revenues should all increase.
The shift from offline to online advertising will continue, Meeker said, partly because Internet advertising offers accountability and measurability, but also thanks to tool and network improvements offered by Google, Yahoo and the nascent MSN AdCenter network for paid search ads.
On a global basis, Meeker said Morgan Stanley expects annual Internet user growth of 10% to 15% over the next two to four years, and annual Internet usage growth of 20% to 30% in the same period, as broadband spreads, the mobile Web takes off, and content improves accordingly. Those hikes will contribute to a 30% or more increase in revenue for Internet companies over the next few years.
Despite those projections, only about $7 billion was spent on Internet advertising in 2003, compared to $48 billion on direct mail, $43 billion on broadcast TV, and even $14 billion on Yellow Pages ads. “We think Internet advertising has nowhere to go but up,” she said. “The Internet is the most under-utilized advertising medium out there.”
The annual Ad:Tech convocation in San Francisco can itself support the contention that Internet advertising is on the low slopes of upward growth. Organizers reported that last year’s SF meeting had about 4,000 attendees. This year the show is playing host to 6,000 guests — and expects to be big enough next year to move out of hotel ballrooms and into the Moscone Convention Center.
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