That's among the key findings in the annual outlook report on digital advertising trends based on 2007 billings of $735 million. Overall, vertical sites accounted for 39% of spending; search, 31%; portals, 19%; and ad networks, 11%.
Underscoring the continuing shift away from portals to more targeted properties, the agency last year more than doubled the number of sites it bought ads on, from 863 to 1,832.
"We're seeing more ad spending being pushed from the head, which is the portal, down the long tail of sites," said Jeff Lanctot, senior vice president of global media at Avenue A|Razorfish. "It's generally accepted now that portal prominence is not as high as it once was." That's also reflected in portal CPMs that increased only 7% last year compared to 30% for vertical sites and 20% on average.
Entertainment and community sites--including YouTube and social networking sites such as MySpace and Facebook--have been among the biggest beneficiaries of the migration of ad dollars away from portals. Spending in both categories grew by more than 50%, to $51.5 million and $55 million, respectively, in 2007. "If ad models and industry standards solidify...healthy increases in these two verticals are likely to continue over the next several years," according to the report.
None of this bodes especially well for a Microsoft-Yahoo merger, which would not necessarily reverse the flow of ad dollars back to portals or lead to either company gaining a top social networking site.
On the flip side, Micro-Hoo would likely benefit from the trend of ad network spending consolidating among the top networks. Through its purchase of aQuantive last year, Microsoft acquired DrivePM, one of the five-largest ad networks. Improved targeting allowed the top five players to increase CPMs by 18% last year.
When it comes to search, Google remains dominant, but technology upgrades by Yahoo and Microsoft helped the category increase its market share by three percentage points to nearly one-third last year. The report cited gains by Yahoo's Panama search marketing platform and Microsoft's adCenter in helping advertisers better optimize campaigns, leading to a larger chunk of ad budgets in 2007.
"Microsoft and Yahoo are doing a nice job of improving their paid search products, but they're still not putting a dent in the giant that is Yahoo," said Lanctot, who kicks off a new blog today for Avenue A|Razorfish based on the report at www.jefflanctot.com.
The challenge for the two companies is increasing their share of overall query volume against Google. A merger would boost their market share closer to about 30%, but still not threaten Google's commanding position.
For mobile advertising, it's another case of wait 'til next year. "Mobile is real today, but we're still probably a year off from seeing real traction in the ad business for mobile," said Lanctot. As far as the agency's clients, most are ready to test mobile advertising, but "it's not a must-have for digital campaigns," he said. (Remember to check if the agency says the same thing next year.)
Even so, Lanctot sees an emerging role for mobile as the "connective tissue" among all other media, whether it's a billboard providing a mobile text code for a promotion or the ability to vote for America Idol contestants via cell phones.
Avenue A|Razorfish also judges online video advertising to be a year away from prime time as experimentation with standards continues in 2008. After an initial focus on pre-roll ads, different formats began surfacing last year including overlay ads (on YouTube), contextually targeted ads, and advertising "skins" that surround media players. Which will emerge as the new incarnation of the 30-second spot remains to be seen.
Among other predictions, the agency expects the recession to have an adverse impact on online advertising. It will be more insulated from spending cutbacks, however, because of its greater accountability and efficiency than other media. CPMs are expected to rise modestly, with most of the agency's media planners expecting an increase of 1% to 10%.
Don't count on another round of "digital upfronts" in 2008. Yahoo, AOL and Microsoft held their versions of TV's annual upfront ritual in 2007 to help stoke enthusiasm for portal media-buying. But the report throws cold water on the concept, saying media buyers have "little interest in such an event," since only a minority of online buys are made 9 to 12 months in advance.
Furthermore, NBC's recent shift to a year-round programming schedule suggests that traditional TV-time buying may begin to resemble digital media planning and buying rather than the reverse.