Safa Rashtchy’s weekly newsletter makes two good points: first, online advertising will grow faster than most think, as major spenders migrate to the web in the next year, and second, paid search has become a distribution network, not just a advertising buy. In other words, as Google VP/Advertising Tim Armstrong pointed out to me in an interview for the book, search has moved marketing from the “expenses” side to the ledger to the “revenue” side – through paid search, marketing becomes sales.
From the newslettter:
The growth in online advertising is the most interesting one since it is rapidly accelerating and we expect it to continue to grow at a faster rate in 2005. Currently, we expect the 2004 growth rate to be at least in the range of 20%-25% and a faster growth rate in 2005, as more advertisers move online. We expect the combination of the three factors will be pushing this growth rate to 30%-50% over the next few years: 1) increased allocation of ad dollars from existing advertisers, 2) addition of new online advertisers, and 3) price increase. Currently, we estimate prices are in approximate parity, on an average basis, with offline media but we expect that overtime, online inventory can get a 20%-50% premium over comparable reach from traditional media.
Search, which we continue to believe must be regarded separately from advertising because of its unique dynamics, should continue to grow at 40% rate in 2004 and very likely maintain that rate in 2005, driven by international growth. Paid search has become the most effective direct marketing technique ever developed and has become a distribution network, not just a form of advertising, for tens of thousands of small merchants, as well as countless major online businesses. In fact, search’s ability to aggregate supply and demand has effectively made the search destinations as online shopping malls. The local search initiatives are likely to create another leg of growth for search in the 2005-2006 time frame.