Paid Search Still Strong; Banners and E-Mail Beefing Up

Paid search’s wild ride isn’t over, according to a Jupiter Research report predicting that the sector will drive growth of online advertising to $14.8 billion by 2008, helped along by banner ads and email marketing. (Jupiter Research shares a parent company with this publication.)

The growth figures come as part of an in-depth forecast for the next five years released last week. Many of the top-line numbers had been released in a July report.

Internet advertising grew 10 percent in 2003, spurred by a 50 percent surge in paid search, the researchers found. Overall online ad expansion is expected to continue at a rate of 19 percent compounded annually through 2008.

There are four main reasons for this prediction. First, the percentage of U.S. households with Internet access will rise to 79 percent by 2008. Second, broadband penetration will go up, increasing ad inventory. Third, sites are beginning to reserve high-quality inventory for large branding ads sold on a sponsorship or cost per thousand basis. As sites continue to improve yield management strategies, CPM rates will grow 11 percent on average, compounded annually through 2008, Jupiter predicts.

Finally, with slowed growth in direct mail and the body blow of the Do Not Call list to telemarketing, online advertising will fill the gap.

Total online ad spending for 2003 was $6.3 billion, according to the researchers. Paid search accounted for $1.6 billion of this total.

“There’s no doubt search will continue to grow,” said Kevin Lee, CEO of search marketing firm “Certainly there’s been dramatic growth over the last few years because search marketing works very well.”

Lee said the most rapidly expanding aspect of search marketing will be contextual search. “That will drive the growth, that and continued aggressiveness by marketers as more and more marketers join the fray.”

While paid search is justly attracting a great deal of industry attention, display ads, including rich media, will begin to recover this year, the report predicted. This is because 46 million U.S. households will have broadband by 2008, fully one-half those online, according to Jupiter. As broadband usage grows, an increased investment in rich media ads will drive display ad spending.

Gary Stein, a Jupiter analyst, noted that display advertising is “still the dominant form of advertising online. Search is growing like crazy, but display ads are still a higher percentage.”

The researchers also saw encouraging signs for email marketing, which will show a compounded annual growth rate of 24 percent over the next five years to reach $6.1 billion by the end of 2008, according to the report. Retention email campaigns will continue to account for the lion’s share of non-spam email marketing spending.

“Not all categories are going to rise at the same level,” Stein said. “Some will rise faster than others and some will rise to greater volumes. But they’ll all rise.”


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