AUSTRALIA (SCMP.com) - Analysts with Jupiter Research found that even with the promise of future growth, the Internet market has not developed as was once hoped and amounted to only A$38 million (about US$21.25 million) last year. In 1999, A$21 million (about US$11.74 million) was spent.
"Although over 40 percent of the population in Australia are online users, access has yet to translate into significant revenue," stated the report, on which Guy Cranswick was the lead analyst.
"The Internet accounted for less than 1 percent of overall advertising expenditures in 2000, leaving little opportunity for ad-supported businesses to reach profitability."
The report blamed the lacklustre performance on disinterest by advertisers and Australian users not looking to the Internet as a place to spend money.
Faced with limited success, many online firms are now cutting back on their advertising budgets, further dampening growth.
"Merchants have struggled with varying success to attract and acquire consumers despite investing heavily in advertising," the report said.
"In recent months, many businesses have reduced advertising spending to lower their burn rates."
In terms of per capita expenditure, Australia lags behind other Western economies. Online ads account for only US$10 per person, compared to US$44 in the United States and US$11 in Western Europe.
In the US, Internet firms have captured 3 percent of the advertising market, and there are predictions of further strong growth.
Jupiter predicted the Australian online advertising market would grow to A$557 million (US$311.47 million) by 2005, but that it would remain well behind traditional media, even as other countries see the margin of difference narrow significantly.
"The limited size of the overall market in Australia and the critical scale required for profitability will restrict opportunities for new entrants and for market consolidation as the industry matures," the report stated.
Jupiter found that only about one-third of Australians have home Internet access, as compared to 51 percent in the United States. The remaining 10 percent of Web surfing in Australia is done at work, and analysts say consumers are less attractive to marketers if they go online while on the job.
Australians also spend less time online each month than their peers elsewhere, logging an average of 460 minutes, 44 percent lower than the 816 minutes racked up by Americans.
Further hampering the Australian market, according to Jupiter, is the dominance of traditional media, such as newspapers, and a lack of interest among mainstream advertising firms in online activity.
Aside from WSA Online, NetX and a handful of others, few agencies were interested in tackling Internet business, the report said.
Jupiter defined online advertising as a paid message featured on a Web site, online service or other interactive medium, such as instant messaging. They exclude creative costs.