Internet advertising has recaptured the imagination of marketers, who see an enormous potential to raise the profile of their brands through vehicles such as paid search and online video. But the fact that scarcity is an issue for digital-advertising often gets lost in the enthusiasm. McKinsey research finds that bottlenecks in supply could limit the pace of online ad growth and raise prices over the next 24 months.¹ The study also suggests that a dearth of ad agencies that can manage both traditional and digital campaigns could further slow the shift in spending to online ads.

Our research combined quantitative analysis and more than 50 interviews with leading digital advertisers, ad agencies, and media companies. We compared both current and projected US ad spending for online vehicles—including video, banners, and paid search (ads tied to keywords that consumers enter in search engines)—with the maximum amount of advertising such vehicles could theoretically absorb today. This analysis revealed that the utilization of the most attractive digital-ad vehicles is already quite high and that, without large increases in the level of online advertising "inventory," demand could outstrip supply over the next 24 months (exhibit). While prices are a closely guarded secret, our...