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Friday, December 24, 2004

Back to the Future with Internet Ads

You'd almost expect to see Michael J. Fox come blasting through the pages of the latest issue of BusinessWeek. Jaded former believers in Internet profitability will probably find it hard to believe that investment analysts are actually recommending the stocks of companies that provide Internet advertising tools and services once again. But it's true.

In a piece called "Where The Real Internet Money Is Made," BusinessWeek shows smart investors that there is money to be made betting on Internet advertising, due to once-elusive profits and industry consolidation, like this week's acquisition of iProspect. To wit:

"It started with advertising on search engines, such as Google Inc. (GOOG ), which collectively grew in five years from near zero to a $3.9 billion chunk of the online ad industry. Now companies are rushing to promote their brands with ever more banner ads, skyscrapers that crawl up the pages, and full-motion videos. Internet advertising should reach $9.4 billion in 2004, according to Kagan Research LLC. And with continued double-digit growth, it's on pace to surpass magazine advertising in about two years, adds Kagan."

Dang. Two years, and the Web overtakes glossy, dead tree advertising! As a die-hard believer in all-things-Internet, even I have to rub my eyes in disbelief at predictions like that. But it's going to happen, and soon (unless, of course, the US dollar's plunge wrecks the global economy first).

The article continues:
Right now, excitement about online advertising is behind a wave of industry consolidation. AOL (TWX ) dished out $435 million for Advertising.com in June. In mid-November, Dow Jones & Co. (DJ ) agreed to buy CBS Marketwatch (MKTW ) for $515 million, a rich 30 times next year's estimated cash flow. Analysts believe that Dow Jones, whose wsj.com is available to subscribers only, is looking to tap the bounty of advertising that a free site can attract because it draws more visitors than paid-for competitors. The current fever has a hint of the dot-com craze, but there's one vital difference: While the advertising stars are still spinning bold visions of the online future, they're measuring their progress with profits every step of the way.

So not only is the advertising resurgence coming fast, it's also reversing conventional wisdom that the only way content sites can make money is through subscription fees. Thanks to the massive audiences and the fact that more than 50% of US households now having broadband access, advertisers now see the Internet for what it is: the undisputed mass, trackable advertising medium in the world. I think we ain't seen nuthin' yet!

On a related note, the latest Fast Company (subscription only) also has a piece called "Commercial Success" about Internet advertising and how Yahoo, after helping Internet adverising crater, has helped bring it back from the brink of oblivion with a mixture of humility and flexibility. It even features a handy infographic about the current ad standards like skyscrapers that helped make the difference.

Posted by Cory Kleinschmidt




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