Paid Search to Grow 41% With Google Leading the Way

  |  January 4, 2006   |  Comments

Two Piper Jaffray reports put Google at the forefront of a $14 billion paid search market this year, leading to a potential $600 stock price.

Paid search is expected to generate more than $14 billion globally in 2006, with Google leading in growth and market share, according to a new Piper Jaffray report.

The paid search industry, which generated an estimated $10 billion globally in 2005, is expected to grow 41 percent in 2006, with Google growing its net revenues by more than 58 percent during the year, according to two research notes released this week by Safa Rashtchy, senior research analyst at Piper Jaffray.

In 2005, Google captured as much as 64 percent of the market, and that will only increase as the company takes advantage of its strong brand and high revenue-per-search metrics, Rashtchy concluded.

"Over the next five years, we estimate the paid search industry will grow at a 37-percent CAGR [compound annual growth rate” to more than $33 billion in 2010, and we expect Google to capture the lion’s share of that revenue and grow faster than the market as a whole," Rashtchy wrote in the Google research note.

Rashtchy also raised the one-year price target for of Google’s stock from $445 to $600, based on the company’s dominance of a strong overall market, new initiatives like Google Base, and other factors. Google shares closed Tuesday at just over $435.

In the Internet Industry report, Rashtchy predicts that stocks in the Internet sector will bring returns over 20 percent for 2006, exceeding the 12-percent return of 2005. Within the sector, search and online advertising performed best, increasing by 23 percent for the year, and advertising services were up 18 percent.

Google itself will be a factor in the growth of the overall industry, according to Rashtchy. "Google is pushing the industry to expand its offerings and create better versions of existing applications, creating a much more dynamic industry where innovation is pushing forward at much faster speed than the past few years," he wrote. "The mere competition with Google, to keep up the service levels, is benefiting the customers and causing companies to improve their offerings significantly."

In December, Rashtchy made a "conservative" estimate that online advertising will exceed $55 billion globally by 2010, a 27-percent compound annual growth rate (CAGR) over 2005, largely due to an expected inflection point for brand advertising this year.

"Crossing the 50-percent threshold on broadband usage, increasing focus of traditional media companies on Internet, and most importantly, the gradual but profound change in consumers’ behavior for content consumption is pushing many more advertisers to allocate more dollars online at the expense of traditional media," Rashtchy noted.

ABOUT THE AUTHOR

Kevin Newcomb

Kevin Newcomb joined ClickZ in August 2004, covering search marketing and other online marketing topics. He has been reporting on web-based businesses since 2000.

Before the bubble burst, Kevin was a marketing manager for an online computer reseller, handling copywriting, e-mail marketing, search marketing and running the affiliate program.

With a combination of real-world marketing experience and years of business journalism, Kevin brings to ClickZ a unique ability to deliver news and training materials that help online marketers do their jobs better.

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