Online advertising revenues skyrocket to record breaking highs

 
GDO Report

Especially Online news Websites which reported a nationwide average of 21 percent growth in 2005.

One company, Lee Enterprises, reports that Online advertising revenues recently increased 139.1 percent for their company nationwide.

Lee Enterprises is the seventh-largest publishing company in the US, operating 57 daily newspapers in 23 states.

Slicing Up the Online Ad Pie

The growing popularity of Online advertising is hard to escape. Just ask any web surfer. A typical visit to the Internet is accompanied by an onslaught of flashing banner ads, animated pop-ups and ubiquitous "sponsored" search results.

The numbers bear out the shift to Online marketing. While the total ad market is projected to have increased by less than 5% in 2005 — final figures have yet to be announced — Online ads are expanding at a 25% annual clip. Granted, Online ads made up just $12 billion of last year's estimated total ad market of $276 billion, but it's the rate of growth for Internet marketing that's turning heads on Madison Avenue. In 2002, Online ads totaled $6 billion — half of last year's tally.

"I can see if people were skeptical about a change from $1 billion to $2 billion," says Greg Stuart, chief executive of the Interactive Advertising Bureau, a New York-based trade association that tracks Online advertising, "but it's doubled in such a short time. Six billion is a big number." Online ad spending was $9.6 billion in 2004.

Paid search, the hottest segment of Online advertising in which links to advertisers' products appear next to keyword search results, generated nearly half of last year's Online ad spending. The biggest beneficiaries of paid search, not surprisingly, were search engines Google (GOOG) and Yahoo (YHOO), and portals AOL, owned by Time Warner (TWX), and MSN, a unit of Microsoft (MSFT). Combined they collected between 80% and 90% of the $5.75 billion paid-search dollars shelled out by advertisers in 2005, according to the Search Engine Marketing Professional Organization, a Wakefield, Mass., trade group.

Recent trends indicate that advertisers should expect to spend even more on paid search this year, which would be a boon to the Internet heavyweights that dominate the market. The Search Engine Marketing Professional Organization found that most advertisers reported a 20% rise in prices for their most common keyword searches during 2005. Fathom Online, a San Francisco marketing company, said its Keyword Price Index showed overall rates flattening out in November and December, though certain advertising categories such as automotive, retail and telecommunications experienced rate jumps between 10% and 15% in the two-month period.

Not all advertisers have been able to keep up with the skyrocketing cost of paid search. FTD Group (FTD), the flower seller that relies heavily on web orders, was forced by climbing ad rates to cut back on Online spending over the holidays. "During the Christmas season, certain Online search engine costs increased significantly over the prior year, and as such we made the decision not to pursue the resulting high cost order volume," the company announced in a Dec. 29 press release. As a result, FTD said its holiday order volume fell 4% from year-earlier levels.

Out With the Old, in With the New

Despite the uptick in Online advertising, traditional media companies aren't reaping the same rewards as their Internet counterparts. The big search engines and web portals have cornered the market on paid search, leaving old-line print publishers and broadcasters from Knight Ridder (KRI) to News Corp. (NWS) scrambling for a slice of the remaining Online ad pie.

While data are hard to come by, media analysts generally believe about 5% of advertising revenues at major publishers comes from Online ads. Sue Clark-Johnson, president of Gannett's (GCI) newspaper division, last month told an industry conference that the company's Online ad revenues would be up an estimated 52.6% for 2005. She didn't offer a dollar figure, however, or indicate whether the increase came from higher ad volumes or rate increases. Gannett's total sales for 2005 are estimated at $7.6 billion, which includes revenues from outdoor advertising, Online properties and overseas newspapers, as well as 99 daily U.S. newspapers. Advertising accounted for about 75% of revenues in 2004.