"We have consistently raised our estimates for online advertising and search as the growth rates and monetization have exceeded our initial projections," the report states. "Search and advertising are becoming increasingly intertwined, and rather than being in competition, they are creating a virtuous cycle that increases the growth rate of online spending as a whole."
According to the study, online ad spending is fast increasing its share of overall ad spending. Piper Jaffray estimates that the portion of ad dollars devoted to online this year was around 5 percent--up from 2 percent from two years ago--and that its allocation should double to 10 percent by the second half of 2006. "Industry experts believe that automakers such as GM and Ford are moving towards 20 percent allocations towards online media," the report states. "These allocations are creating new momentum in the online advertising space."
The report also points to changes in the search advertising market, namely rising prices and the use of search as a branding tool rather than just a traffic generator. "There are clear indications that search is now being used for branding impact as well as its core customer acquisition ability," the report said. "Participants indicated that nearly 10 percent of search spending is now driven by the branding impact of search listings."