A study by Forrester Research released today concludes that online retail will increase by 17% this year to $204 billion, with clothing, computers, and cars topping the list of sales categories.

“The State of Retailing Online 2008: Marketing Report,” is the first of a three-part series of reports based on the study. It forecasts $26.6 billion in clothing sales, $23.9 billion in computer sales, and $19.3 billion in automobile sales.

According to the report report, search engine marketing drives 35% of sales, making it the best way to attract new customers. 99% of online retailers surveyed said they use pay-for-performance search placement

Sixty-five percent of the retailers surveyed said they are eager to experiment with ads on social networks and 55% they would focus more on widgets in 2008. The report stresses that social networking sites help build brands but they are less proven for driving revenue than e-mail marketing and free shipping promotions.

The report found that online retailers set aside 53% of their marketing budgets on acquiring online customers and 21% on retaining online customers.

Sucharita Mulpuru, Forrester Research principal analyst and lead author of the report, said that online shoppers can be divided into two camps: those who search online for the best price and those who use the Web for convenience.

“More affluent customers appreciate the convenience of shopping online and are not necessarily looking for the best deal,” Mulpuru said in a prepared statement. “Retailers would be wise to recognize there are significant opportunities within both audiences and should market to them accordingly.