Avenue A / Razorfish: Search Share to Decline

In 2006, search marketing’s share of the total online ad spend will shrink as brand marketers boost their Web budgets. Meanwhile, online ad networks will face large-scale consolidation.

Those are among the key predictions of the new “2006 Digital Media Outlook” report from Avenue A / Razorfish, the agency’s second annual overview of interactive media.

The report, authored by Avenue A / Razorfish VP of Media Jeff Lanctot, examines significant developments in digital media and prognosticates on what the coming year may hold. It discusses a wide range of online media trends and advertising vehicles, including the portals, vertical sites, search, mobile, gaming, RSS and consumer-generated media.

Perhaps its most notable observation is that as large brand advertisers increase their online spend in 2006, in some cases by as much as 20 or 30 percent, search’s share of the overall marketing spend may actually shrink. The prediction is based on the agency’s own budget information, the report notes, but may apply more generally to the sector.

And while brand advertisers ramp up budgets, direct marketing-focused verticals such as travel and technology have increased their offline spend rather than transfer money online.

“Travelocity is one that’s gotten more and more aggressive with TV advertising,” Lanctot told ClickZ news. “Similarly in the technology channel… it’s not likely the big brands are going to spend a lot more.”

Another significant trend isolated in the report is an impending consolidation of ad networks. “The ad network category has not yet seen significant consolidation, but it seems inevitable that a shakeout is near,” it states. “Too few networks add any incremental value in the buyer/seller relationship.” As a result, the successful networks will be the ones that add value through either targeting or aggregation of a unique audience.

Among the portals, the report singles out AOL for special praise. In the wake of its public launch, Avenue A / Razorfish claims the portal has exceeded the expectations of Internet users and the marketing community alike, particularly with regard to video. Lanctot, who last year predicted AOL was poised for a big game of catch-up, said even he was surprised by its ability to execute solid video content.

“I hesitated to say this would be their year, but they did pull it together, perhaps more than I thought they would,” he said. “What took me by surprise was the commitment to video and the success of Live 8.”

Yahoo meanwhile is also hailed in the report, for different reasons. Via its Flickr, Upcoming.org and del.ici.ous acquisitions, the company is “clearly determined to keep one foot in the communal, grassroots Web,” it said. But Lanctot told ClickZ the company has not yet fulfilled its promise of publishing a large volume of original multimedia content online.

“Yahoo has disappointed to some degree. Most folks in the industry believed they would be a bit further along,” he said. In any case, he added, pre-roll video advertising is not yet the big deal for media buyers it has been made out to be, remaining an important eventuality rather than a short-term gold mine.

“It’s important, but we get too focused on pre-roll video as opposed to in-page video,” he said. “The number of pages generated by in-stream video is very small today and will remain very small for the foreseeable future.”

The document also singles out gaming, both online and console, as a big opportunity for marketers. Whereas most ad impressions are to be found in online games, console games will be a sweet spot for brand marketers looking for deeper integration with the game action.

In its discussion of mobile and RSS, the report offers muted enthusiasm. Marketing to phones and handsets is still relegated to test budgets, but will likely see great adoption over the next four years. RSS is going to have a big year in terms of adoption, but in terms of advertising “remains an immature area with no clear winners established.”

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