On-Line Advertising Turns the Corner

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On-Line Advertising Turns the Corner

Just a few short years ago, before the dot-com crash, any Web site with lots of visitors was thought to be a money machine for advertisers. BlueMountain.com, a greeting card company with 11 million visitors a month, sold for $780 million, even though it had no revenues. But, shortly after the crash, you couldn’t give those eyeballs away, and until recently the industry consensus was that there was little if any value in advertising on the Internet.

All that’s changed now. Eyeballs on the Internet are hot again. As reported in a recent article in Business 2.0, Dow Jones just paid $519 million for MarketWatch.com, and AOL bought Weblogs.com for $25 million. This year, Internet ad spending could top $12 billion and is expected to grow at 12 percent a year for the next five years.

The reason it didn’t work the first time was that the technology simply hadn’t penetrated far enough to change the way people made purchasing decisions. But broadband connections in the U.S. are approaching 40 million, and people with broadband spend three hours a day on-line versus less than two hours a day watching television, according to a Stanford University study.

The big companies are buying Internet ads these days, which is driving a wave of deals in which the big content companies vie for audiences to watch those ads. The New York Times Company bought About.com for $410 million. InterActiveCorp bought Ask Jeeves for $1.9 billion. As we reported in Trend #2, News Corporation bought the parent company of MySpace for $580 million.

Overall, the average price paid for an individual on-line visitor in these deals was $38. In short, companies are doing what they did before the dot-com crash, but hoping that they’ve learned enough lessons to get it right this time.

Another force that has driven this trend is Google, with a 30 percent marketshare of all on-line ad spending, which includes 40 percent of paid search ads. Since the dot-com crash, “Google” has not only entered the English language as a verb but has become a common household tool for finding anything, anytime, anywhere.

Despite this renewed interest, advertisers devoted only about 5 percent of their spending on-line in 2005. But, going forward, you can expect 10 percent to be closer to the norm. In fact, Internet advertising is expected to grow 28 percent in 2006, to about $13 billion, according to Jupiter Research. By 2007, Jupiter predicts that the market will surpass $15 billion.

With this much at stake, it’s not surprising that Google is starting to come under pressure, as other portals attempt to capture some of that ad revenue...

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