Online Ad Spending Surpasses Expectations

A marketing push during the holiday season propelled online ad spending to increase by a greater-than-anticipated 15 percent in the fourth quarter, according to a new study conducted by Deutsche Bank in conjunction with MediaPost.

Pricing also increased, although not as dramatically: the cost of premium inventory increased by an average of 6 percent from the third quarter to the fourth, while the price of run-of-network inventory increased by about 3 percent during that time, and pay-per-click prices went up by 5 percent.

For the report, 60 media executives were questioned earlier this month about their clients' experiences with Internet advertising in the fourth quarter, and expectations for this quarter. This survey, which was conducted online by InsightExpress using members of the MediaPost advisory panel, is the fifth in an ongoing series of quarterly studies of media professionals by MediaPost and Deutsche Bank.

Overall, the report was extremely optimistic. "A 15 percent improvement in spending would suggest that things are better than expected at this point," said Deutsche senior analyst Jeetil Patel. "It's quite bullish for the industry as a whole." Responses to the third-quarter survey had indicated that spending would only increase by around 10 percent.

About 72 percent of media executives responding to the current survey reported that their clients spent more on Internet advertising in the fourth quarter than the third, with 55 percent seeing increases of more than 10 percent. An additional 20 percent reported no change in spending, while 8 percent said spending declined.

The average cost per thousand impressions on premium sites came to $16.71--about twice as much as the $8.47 per thousand paid for run-of-network inventory in the fourth quarter. This survey marked the first time that respondents were asked for specific pricing information.

The study also showed that ad networks drew a larger share of dollars than in the past. Media executives reported that they spent about 16 percent of their clients' branded advertising budgets on ad networks like Advertising.com and ValueClick--up from 11 percent in the third quarter and 12 percent in the last quarter of 2004.

The large portals--AOL, MSN, and Yahoo!--garnered around 30 percent of budget, while niche sites like iVillage, Marketwatch, and CNET captured 33 percent.

When it came to paid search, 65 percent of media executives surveyed reported that paid search spending increased in the fourth quarter compared to the third, while 25 percent reported no change and 10 percent saw spending drop. Almost half of respondents--49 percent--said that spending was up between 1 and 10 percent; 16 percent of respondents saw a surge of more than 11 percent.

Where did that money go? Fifty-seven percent of search spending went to Google, while Yahoo! garnered 23 percent of spending, MSN accounted for 5 percent, and Miva and Ask Jeeves each garnered 1 percent.

Deutsche also looked at pricing, and calculated that the average price per click was 58 cents in the fourth quarter. That figure, however, comes with the caveat that gauging search pricing is extremely difficult, with millions of keywords continuously in play, and category, bid position, and seasonality all influencing prices.

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