Report: Rich Media's The New Paid Search

If paid search dominated news about online advertising in 2004, look for 2005 to be the year of rich media advertising, eMarketer predicted in its 2005 portal update report, scheduled for release today.

"Paid search advertising took the lion's share of online ad spending in 2004, but eMarketer forecasts rich media advertising will grow more quickly than paid search in 2005," wrote eMarketer Senior Analyst Ben Macklin in the report. "The barriers to rich media advertising, such as bandwidth constraints and ad format limitations, are falling," he wrote.

In fact, eMarketer predicted that U.S. spending on rich media advertising, including interstitials, would leap to around $1.02 billion in 2005, up from $796 million last year. eMarketer forecast that all online ad spending in the United States would reach $11.3 billion in 2005, up from an estimated $9.4 billion last year.

Still, eMarketer expects paid search to show continued strength, with $4.69 billion going to paid search in 2005, compared to $3.93 billion in 2004.

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The report also assessed the four major Internet companies--the portals Yahoo!, MSN, and America Online, and search giant Google--and gave high marks to Yahoo! eMarketer rated Yahoo!'s outlook as "excellent," based on its recent growth, acquisitions of companies such as online classified site Hot Jobs and paid listings provider Overture, and the possibility that Yahoo! will produce original content, among other factors.

Google's outlook was deemed "very good" on the strength of paid search, which accounts for 98 percent of the company's revenue. eMarketer found MSN's prognosis to be "good," based on Microsoft's dominance in the software world.

"With Microsoft dabbling in areas as diverse as mobile services, search technology, digital TV, and online gaming, it will continue to be a leader in the converging digital environment," concluded the report.

The report was most guarded when it came to America Online, finding the outlook to be "uncertain"--largely because AOL subscribership has sharply declined. Still, the report found a bright spot in AOL's plan to create AOL.com as a free ad-supported portal, stating: "AOL does have the online properties, applications, and brand exposure to turn itself around."

For the study, eMarketer also examined paid content online and found that, with Web advertising going strong, there was less momentum in asking consumers to pay for premium content.

In particular, eMarketer believes that "Internet users, in general, are not prepared to pay for news." But, stated the report, there are "additional opportunities for paid content, particularly within the entertainment categories of music, movies, games, and sports."

Worldwide, Google and Yahoo! are far and away the biggest online advertising companies, according to the report. Google generated $2.12 billion in worldwide revenues in the last year's first three quarters, up 130 percent from $921 million in the first three quarters of 2003. Yahoo! saw revenues rise by nearly 220 percent for that same period, from $654 million in the first three quarters of 2003 to $2.09 billion in the first nine months of 2004.

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