A report by IDC Internet on the projected growth of online advertising revenue, says that by 2011 it will just about double.
The major driver of that growth will be rich media advertising.
In 2006, total Internet advertising reached $16.9 billion, it's expected to reach around $31.3 billion by 2011. That equals an average of 13.5 percent yearly between 2006-2011. That will be three times quicker than other ad spending.
"The major source of growth in the Internet area is from advertising budgets being moved from traditional to online media," said Karsten Weide, program director, Digital Marketplace: New Media and Entertainment at IDC. "At the biggest risk are newspapers and broadcast television; every single traditional media will lose revenue to online advertising."
This won't only change traditional media though, search will drop from the current 40 percent of online share, to about 32 percent in 2011; one reason Google purchased Doubleclick.
The conclusion looks like Google will be in trouble, but while search will drop in percentages, it will still grow because the overall Internet advertising market will continue to increase. In other words, even though it will drop to 32 percent for search, that will probably be bigger than what the 40 percent of today equals, with the overall Internet market growing so strongly.
It's similar to when Southwest Airlines (LUV) entered as a low cost competitor to other airlines. At first it would look like the other companies would have huge market share losses from that move. In reality, when they entered the market, they weren't fighting simply for a piece of an existing market, they actually enlarged the market.
What happened was people who used to drive a car, take a train or rode on a bus, now could travel cheaper to their destinations by the low cost of flying on Southwest Airlines. So instead of using other means of transportation, they now would fly with Southwest.
So while Southwest may have increased their market share year-after-year, they weren't eating away at the profits of other airlines because they had enlarged the overall airline market.
Online advertising through rich media and search are going to be the same way. We'll see the anomaly of search decreasing in market share, while still growing in revenue, because the online advertising market itself is being enlarged.
What's really interesting about this is we may now start to see the tables turned on Google, as Yahoo (YHOO) is far better positioned for the growth of rich media than Google (GOOG) is. Wouldn't it be something to see Yahoo become the new "cool" of online advertising after being the poor cousin to Google for so long?
Comment Preview