AOL talk reflects revival of Web advertising

Martin Wolk • Profile • E-mail

Microsoft, Google, Yahoo and Comcast all have their own reasons for pursuing a minority stake in Time Warner’s America Online unit.

But one thing is clear from the frenzy of speculation over the future of the Internet property: After years of disappointment that followed the dot-com collapse, online advertising is suddenly hot.

Internet advertising, which slumped to just $6 billion in 2002 from more than $8 billion in 2000, has rebounded dramatically and is expected to grow 34 percent this year to nearly $13 billion, according to eMarketer, a research firm. The market is tightly concentrated, with more than half the sales going to just four players: Microsoft’s MSN, Yahoo, AOL and Google. (MSNBC is a joint venture of Microsoft and NBC.)

While the Internet is still just a small fraction of the $60 billion market for television advertising, the rapid growth makes the sector a bright spot in an otherwise mature market that is suffering this year from a sluggishness that is typical of odd-numbered years, which lack national elections and Olympics.

“Over the last couple of years it has become clear to everyone that the Internet is here to stay and there is a lot of audience there,” said David Hallerman, a senior analyst at eMarketer. “There is no longer a boom-and-bust mentality.”

From Amazon.com and eBay to online travel agents like Travelocity and Expedia, plenty of multibillion-dollar businesses have been built through online advertising, marketing and sales. The difference now is that major brand-name advertisers including car makers and consumer-product companies are now jumping onto the Internet bandwagon in droves.

James Rutherford, executive vice president of Veronis Suhler Stevenson, an investment bank, said marketers are being attracted in part by new ad presentations that are far more sophisticated and compelling than the static banner ads of yore. But more important is the unique ability offered by the Web to track just how effective any ad campaign might be.

“The interactivity of the medium makes it a lot more measurable than any other medium out there with the exception of direct-response television,” he said. “Even if people are not responding, you can measure what what they are viewing and what they click on. … It’s a terrific way to advertise because you know what you are getting for your ad dollar.”

Veronis Suhler estimates Internet advertising will grow at an average 24 percent a year over the next five years, compared with just 7 percent for the advertising industry overall and 4 percent for network television.

By 2009 online advertisers will pay $28 billion nationwide, more than consumer magazines will generate from advertising and circulation combined, Rutherford said.

Within online advertising, nothing is hotter than the so-called keyword search advertising that is the core of Google’s business, which generated $4.5 billion in revenue last year.

“Keyword search has been the key driver of the resurgence in online advertising,” said Jeff Lanctot, a vice president at Avenue A/Razorfish, the largest ad agency that works exclusively in online media. “(Keyword search) has brought an accountability and efficiency in driving sales that is really unprecedented in the advertising business.”

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