Online ad spending still surging, but biggest players getting lion's share

John Shinal · October 5, 2007 · Short URL:

The latest report on Internet ad spending showed that the rate of annual growth, while still healthy, has slipped from earlier this year, and that the biggest online properties are still dominating the business.


The Interactive Advertising Bureau said online spending rose 25% in the second quarter to $5.1 billion. That's slightly less than the 27% year-over-year increase for the entire first half but still five times faster than the overall industry rate, which includes print and broadcast ads.


In an illustration that reach, and scope of content, remains at least as important as content quality when it comes to attracting ad dollars, the top 10 Internet properties hauled in a whopping 70% of the first-half total, roughly flat with 71% a year ago.


In answer to the question of how Google can mint so many millionaires, the report said 41% of ad spending went to search marketing dollars, up from 40% a year ago. The recent spate of ad-related acquisitions by Yahoo, Google and Microsoft will likely accelerate that trend, which helps explain why more and more online publishers are looking to niche vertical search engines to help maximize their ad revenue, rather than give up an ever larger chunk of it via a partnership with the big players.


If you remember, Yahoo said in July that its second-quarter partnership revenue fell about 6% from a year earlier, while Google's Q2 growth from its affiliate network was half the rate of its own sites.


Given that Google now controls more than half the search market, you can understand why Microsoft is pulling out all its guns to try and stop the takeover of DoubleClick by Google. As ironic as it is for the Redmond giant, which was once found guilty of abusing its own market monopoly, to be carrying that flag, the latest online spending numbers suggest that it may be in the interest of small Web publishers that it succeed.


In spite of the dominance of the gorillas, the good news for anyone whose business model depends on selling ads is that the future market opportunity remains huge. That's because while online ad spending continues to grow much faster than the overall industry, it remains a small part of it. 


Total U.S. ad spending rose 4.6% in 2006 to $150 billion. If online ad spending does rise at somewhere between 20% and 25% this year, as most research firms expect, it still will represent less than a fifth of the whole pie. 


Anyone who wants to get some, though, better start their (search) engines.


Vator question - How dominant a share of the online ad market do you think the big players will have three years from now, and do you think antitrust regulators should block the Google-DoubleClick acquisition? Post your answer in our comments section.

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