Piper Pegs 2011 Web Ad Spending at Over $80 Billion

Piper Jaffray’s predictions for online ad spending keep going up, and are now expected to go beyond the $80 billion mark by 2011. Higher growth rates at the close of 2006 are one factor, but the research firm points to the people as the true driving force. As more consumers take the reins when it comes to controlling their media diets, and spend more time online and creating their own content, advertisers will continue to boost online budgets. Several prognostications are made in the firm’s new “User Revolution” report, including the domination of video online, a Google dynasty, and the death of the portal.

In December, Piper Jaffray & Co.’s Internet ad revenue forecast for 2011 was at $78 billion, but today’s report raises that estimate to $81.1 billion. “We have more confidence in the growth rates,” of the Internet, said Safa Rashtchy, managing director, senior Internet analyst for the company. According to Rashtchy, when measuring Internet ad spending, the firm includes search advertising, display ads, text links, video advertising and e-mail, but excludes mobile and iTV.

The increasing fragmentation of media choices is among the key factors advertisers will have to face in the coming years, according to the report. This means “ad agencies have to change and adapt to the new realities and become much more mindful of how they should look at the entire landscape of the multiple channels,” said Rashtchy.

Because more touch-points exist, advertisers will need to purchase more inventory across multiple media platforms, particularly the Web, the report adds. Exactly what this means for ad agencies when it comes to media planning and buying is unclear. “We don’t have a blueprint for that,” Rashtchy told ClickZ News. No matter what, though, advertisers can no longer expect to reach audiences only in contextually-relevant places.

The explosion of niche content online and the related segmentation of audiences, however, will continue to drive online ad spending by small advertisers that otherwise cannot afford mass market vehicles. This “will actually give more power to small advertisers,” Rashtchy said. Still, big brand advertisers will continue to shell out the lion’s share of online ad dollars, he continued, noting consumer packaged goods and automotive advertisers will maintain their big spender positions. “Over time, there won’t be much difference between the Web and the rest of the media channels….It will reflect overall advertising dollars out there,” he added.

In terms of ad formats, video will be at the forefront of the coming growth spurt for brand advertisers moving money from TV to Web.

Another focus of the report is on the rise of what Piper refers to as “communitainment” and “usites,” or user-generated sites. More and more, people are merging their objectives when it comes to using media. Transaction-based communication as we know it is morphing with online entertainment and communal activity to form “communitainment.” Continued Rashtchy, “They’re not going to compartmentalize their time.” Therefore, advertisers “need to look at new ways of interacting with customers, not just reaching them,” he said.

Indeed, even advertising on portals will become less significant as search fills the portals’ role as keeper of the Web onramp. “The value of reaching 50 million people on Yahoo’s front page…has diminished quite a bit if [users are] only going there quickly to check their calendars or e-mail,” said Rashtchy. Advertisers, he added, “need to complement those with places where they can really impact the brand by getting engaged with the users.”

To reach the ever-increasing small, niche content sites, advertisers will increase spending on ad networks.

Yahoo is among the firms spotlighted as ones to watch over the next few years, along with News Corp., Microsoft, Brightcove, Valueclick, Digg, and the shining star of the report, Google, deemed the most important company to watch in next ten years. As a result of the search firm’s brand presence and aggressive product development, notes the report, “We believe that Google can eventually achieve 70 percent to 80 percent market share both in the United States and worldwide.”

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