Display ad market set to rebound 10.5%

Matt Bowman · January 5, 2010 · Short URL: https://vator.tv/n/cd8
Bmh21_3

JP Morgan analyst predicts a surge in online brand ads, calls Yahoo underrated.

The online ad market is looking up in 2010, according to JP Morgan analyst Imran Khan. As premium publishers pull out of third-party ad networks, display advertising technology improves, and the economy recovers, display advertising is poised for 10.5% rebound, Khan explained in a report released yesterday.

In the last two years, the online ad market has been a big fat disappointment. Once believed to be the future monetization for Silicon Valley innovation as well as big media companies, the price paid for online inventory never reached levels big enough to fund the pipe dreams. Online ad networks became very efficient at driving down the price for inventory, and inventory itself grew at alarming rates. But things are changing slowly, especially in display advertising.

Dissatisfied with the CPM (cost per thousand impressions) status quo, AOL plans to reduce the amount of inventory sold via ad network Ad.com. CBS likewise plans to stop selling premium inventory via third-party networks, and work directly with advertisers. Khan says this will increase price integrity in the display ad market.

This is a bit like News Corp. pulling out of Google. Big publishers are coming to realize that open, automated markets don’t value their premium content highly enough. Google’s AdSense and online ad networks value content using easily measurable metrics like traffic, clicks and links, while more ephemeral qualities like certain audience demographics, writing style and media brand association are left out of the equation. AOL learned that the hard way. When the company shifted its premium inventory to Ad.com, its display RPM (revenue per thousand impressions) plummeted.


As premium publishers pull their inventory out of the networks and the performance of graphical ads improves thanks to better technology, sponsorships, behavioral targeting, better timing, etc, the CPM (cost per thousand impressions) should increase. JP Morgan anticipates a 5% bump in revenue per thousand impressions.

Another reason for hope is the return to macroeconomic stability. 2008-9 were dismal years for ad spending. Total revenues in 2009 were down 5.2 percent to $7.5 billion according to JPM. Auto and Finance industries account for 20% of the US online ad spend, and those industries have been sucking wind, but are on the comeback.

As an side, during the last two years, ad-based business models have become anathema in Silicon Valley, because the ad money just hasn’t materialized. Given that macroeconomic causes are partially to blame for the ad dollar drought, one wonders if the biz model banishment was a bit premature.

Back to good news: Display advertising is underpenetrated online, and will continue to gain ad dollars from traditional advertising. It’s well known that brand advertisers have been hesitant to move online. Whereas brand advertising currently accounts for 48% of the overall ad spend, it’s only 27% of the online ad spend. Direct advertising (junk mail and phone calls in the old world, email and search ads online) is easily automated and highly measurable on the internet, so its adoption online was quick. Brand advertising, on the other hand, requires more creative resources and sensitivity to context. Its impact (the associations formed in consumers’ minds that leads to purchases later on) is also harder to measure than direct marketing, which is intended to produce an instant reaction. That makes the transition to the net slower for brand ads, but given that time spent online is still light years ahead of the ad dollar expenditure, it’s a safe bet that brand advertising online will continue to grow significantly.

  

 

All of this bodes well for Yahoo!, a misunderstood and sorely underrated company, according to JPM. Yahoo’s top sites outpace the industry in growth. It also has a large portion of the display ad market share, which means it is better positioned than just about any other internet giant to tap into the 10.5% growth this year.

 


 


Support VatorNews by Donating

Read more from our "Trends and news" series

More episodes