2006 A Turning Point for Internet Advertising Industry

According to ZDnet, the 10th birthday of the online ad industry will mark the end of corporate testing and the beginning of bigger buys:

Corporate marketers have made online advertising a standard part of media budgets as online spending looks set to accelerate further in 2006, Google's North American sales chief said late Tuesday.

Tim Armstrong, Google's advertising sales vice president, said in an interview before the Reuters Media and Advertising Summit that 2005 marked the turning point when advertisers switched from testing to investing in the decade-old medium.

"There is robust interest in online advertising and that interest is now turning into real dollars," Armstrong said, noting that market analysts are predicting a banner 2005 year with forecasts ranging from $10 billion to $15 billion.

"The experimenting and testing phase begun in the 1990s has ended. Corporate ad buyers are investing now," he said.

Jupiter Research estimates the U.S. online advertising market will grow 28 percent over last year, to $11.9 billion in 2005, moving to $13.6 billion in 2006 and $15.1 billion in 2007....[read the article]

Of course, Google has outperformed, owning an estimated 30% of industry marketshare.

We're heard this before, of course, and it's what the IAB's been promoting for years through projects like the XMOS study. Estimates put online spends at 5% of overall budgets, but that could possibly jump to 10% over the next few years.

There are some interesting ramifications to that 10% spend. First of all, inventory is limited, particularly with SEM, but across the most popular sites, as well. Publishers and site owners are going to have to get creative to increase their value and inventory. Secondly, how will this impact keyword pricing among the major search engines?  Will the projected big online spend of corporate America make local search the only option for smaller businesses? Does it create room for another major player in the portal space?

We'll see...

Comments

[Easton Ellsworth]

Sorry if this sounds irrelevant, but I think that the growth of corporate blogging itself will represent another turning point in Web advertising. It costs relatively little to start up a company blog, but the potential rewards in increased sales are great. I think blogs will lead people to search the Web in a different way - we already see this happening as many of us read the news online using RSS feed readers like Newsgator or Bloglines, or as we read the news at Yahoo! from a combination of mainstream media sources and blogs. And many companies will therefore try to switch from an all-out focus on traditional advertising to a blog-oriented promotion approach.

I'm sorry to say that I don't know much about the formulas that go into figuring out the profitability of Web advertising. I'd love to hear more about this topic.