Search Propels Online Ad Growth

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Online ad revenue rose briskly in the fourth quarter, thanks largely to the boom in search marketing, according to industry estimates.

The Interactive Advertising Bureau said its preliminary estimates for the industry, based on data from the top 15 online ad sellers collected by PricewaterhouseCoopers, indicate that online ad revenue in the holiday quarter surged 38 percent to $2.2 billion, bringing the industry's total revenue to $7.2 billion. The quarterly growth was the highest increase recorded since it and PwC began tracking online ad sales in 1996.

Greg Stuart, head of the IAB, said the quarter marked five straight periods of growth for the industry.

"I think the simple summary is things are very, very good," he added.

The IAB will publish a detailed report on the fourth quarter in the next two months.

The bullish news comes as eMarketer predicts that online advertising's upward trajectory results largely from paid search. The researcher said search rose 120 percent in 2003, accounting for 30 percent of online ad sales. Though eMarketer expects search's explosive expansion to slow, it still anticipates brisk growth. In 2004, it forecasts search advertising will grow 22 percent to $2.5 billion. As a percentage of overall online ad spending, search will make up 32.5 percent, eMarketer said.

David Hallerman, an eMarketer analyst, said the researcher's search estimates were conservative. He attributed growth in 2004 as coming from more big advertisers taking to the medium, driving up prices, as well as Internet searchers creating more inventory.

One area for search growth over the medium term is the development of local searching capabilities, Hallerman said. The Kelsey Group forecasts that the market for local search could reach $2.5 billion in 2008, assuming search providers like Google and Yahoo's Overture Services develop local search capabilities.

"Local search is going to happen more and more," he said. "In 2004, I still don't think it's going to be ready for prime time."

A survey released yesterday by The Kelsey Group and indicates that searchers already geographically define many searches. In a survey of 5,000 online shoppers, 25 percent of searchers chose merchants "near my home or work." The Kelsey Group had previously estimated that local commercial search was 10 percent of all searches.

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