• by Gavin O'Malley  @mp_gavin, March 1, 2005

Paid search will continue to be the fastest growing segment of the online ad marketplace, increasing from $2.6 billion last year to $5.5 billion in 2009, a leading industry analyst said Monday during a search-related conference in New York. But that expert, JupiterResearch's Niki Scevak warned that the rate of growth is beginning to slow.

Speaking at its Search Engine Strategies conference, Scevak said JupiterResearch anticipates year-over-year growth will fall from 42 percent in 2005 to18 percent by 2007, and just 10 percent by 2009.

"We're bearish on local because the market seems to underestimate the time and resources necessary to acquire the reach that local obviously demands," Scevak said during a conference session.

While Jupiter expects local search to grow from $502 million in 2004 to $879 million by 2009, its percentage of the total online ad spend will decrease from 6 percent in 2004 to 5.5 percent by 2009.

Scevak was far more positive regarding the vertical search trend, as more consumers choose specialty engines to narrow their searches. Referring to a recent Jupiter report, "Vertical Search: Early Marketers Will Reap Rewards of Low Pricing," Scevak said that the search industry will develop in much the same way that historical media markets did before it, with the broad-based search engines spawning a raft of vertical search engines dedicated to specific categories.

"Broad-based search engines are extremely good at navigating vast amounts of information, but extremely poor at helping a consumer make a purchase decision," Scevak said. "This creates a large opportunity to enhance the consumer experience with vertical search," he added.

In the search market overall, dramatically rising keyword prices on broad-based search engines will soon stabilize, and industry growth will depend largely on the incremental value provided by vertical search engines, said Scevak. "The trend will cause a sea change in how advertising spending is allocated online, and force media firms in vertical categories to embrace performance-based advertising pricing models."