Portals Are Still Gold, Says Avenue A/Razorfish

Despite having been heaped with scorn for failing to match the pace of change in search, social networking and user-generated content, the big three portals all scored healthy 2006 spending increases with one of the largest independent digital ad firms, Avenue A/Razorfish.

Yahoo, AOL and MSN saw their share of that agency’s media spending collectively jump from 13 percent in 2005 to 24 percent last year, driven by a lift in brand advertising budgets and AOL’s shift to an ad-supported model. The data are featured in Avenue A/Razorfish’s 2007 Digital Outlook report, which details trends in media spending and digital marketing.

Jeff Lanctot, SVP and global media lead for Avenue A/Razorfish, said the portals showed prowess in accommodating growing brand advertising budgets. “Especially with Q4 and the seasonality of spending, portals were well able to shift things around and respond to those last minute dollars,” he said.

Lanctot added that AOL, which accounted for 454 percent more in billings last year than in 2005, didn’t steal share from MSN and Yahoo, but rather grew the whole category. Spending on both MSN and Yahoo was up over 80 percent year over year.

The agency’s total media spend for 2006 rose 30 percent to $542 million, money it scattered over 863 Web sites. That rate of growth is slightly lower than 2005’s 34 percent increase over 2004. CPMs for the year jumped almost 19 percent over 2005 prices.

The agency predicted last year that search’s share of its overall spend would shrink as brand ad budgets surged, and that was indeed the case. Although search billings grew 17 percent, the category commanded only 28 percent of total billings in 2006, down from 31 percent in 2005. Not surprisingly, spending with Google grew faster than the overall search category.

Ad networks’ portion of the overall spend also receded, from 12 percent to 11 percent, amid signs of consolidation among the largest networks.

Spending on vertical sites, defined as any property not included under a portal, search or ad network buy, was 37 percent. Within the company’s vertical spending outlay, the “entertainment” and “community” categories dominated with 17 percent each. The “community” line item includes spending on social networking sites like MySpace, where Avenue A/Razorfish spent 354 percent more in 2006 than it did in 2005.

Lanctot said while MySpace has grown at an incredible rate, its audience reach doesn’t warrant treating it as a fourth portal. “They need to make advertisers feel more comfortable,” he said.

“The portals are a must-consider,” he added. “I don’t know that I’d put the social networks in that category yet, with the exception of companies that want to target the younger demographics.”

Video advertising captured surprisingly little of Avenue A/Razorfish’s budget, given the attention it’s receiving, and pre-roll advertising commanded so few dollars that “frankly it’s not even on our radar in terms of volume,” Lanctot said.

And despite all the attention being paid to the rabid antics of traditional media companies and their online channels, the percent of the agency’s spend going to the online extensions of traditional media companies’ offline brands was less than 10 percent of its billings. That figure excludes standalone digital properties that are owned by traditional companies, but even with those sites included, Lanctot estimates old media’s share of online advertising is “under 20 percent, maybe under 15 percent.”

That said, Avenue A/Razorfish is paying close attention to video, especially in-page video, which it estimates may outperform pre-roll when measured in terms of cost per acquisition, owing to the higher CPMs associated with pre-roll.

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