Good post by David Churbuck on this week’s news from the Interactive Advertising Bureau and PricewaterhouseCoopers that Internet ad revenues reached an estimated $4.2 billion for the third quarter, a new record. The announcement, of course, kicked off the usual debate over whether those 30% year-to-year growth rates are sustainable. Merrill Lynch believes so, at least for the short term, as it raised its growth estimates for Q4 from 27% to 30%.
With more ad dollars being poured into search, video, social networking and mobile, we’re just scratching the surface of the potential for the online ad market. eMarketer predicts spending on video ads on the Web will grow 89% next year, while still accounting for only 4.2% of all Internet ad spending. But Internet advertising remains a small slice of total media spending – just 8.2% this year in the case of B2B marketers. eMarketer pegs online’s contribution at 5.7% of all media spending for 2006, well behind television, direct mail, newspapers and radio. So as dollars continue to shift from traditional media to online, there’s no reason to think the growth rates will slow anytime soon. And as Churbuck points out, these trends don’t take into account the new online ad models that have yet to emerge:
Behavioral models, such as those promoted by Tacoda; or RSS models such as Federated’s, give a bit more precision and reduce the “gross” to “less gross” but the industry is still waiting for a way to monetize the long tail and give some economic value to engagement.
I can’t predict the next big thing in advertising, but will assume the next Bill Gross is working on the breakthrough that will start the cycle all over again. That assumption may be like wishing for a pony for Christmas, but I believe it is a shift in models, not the rise of new mediums — ie video — that will drive the continued growth.