Google Captures About 15% of All Online Advertising Which Continues to Grow as Search Engine Advertising Revenues Are Forecast to Overtake Internet Display Advertising by 2010

Philip Stone August 11, 2005

There can be no question that when it comes to online advertising that search revenue is on a roll, and the latest estimates from Jupiter Research says it will outpace even display advertising by 2010. Overall US Internet advertising is forecast to more than double the $9.3 billion at the end of 2004 to reach $18.9 billion by 2010.

That’s good news for Google that already holds 15% of the total US online advertising market, up 1% over Q1, according to SG Cowen & Co., a leading investment bank and research firm. Yahoo held steady at 13% in Q2.

The keyword cost-per-click rate actually declined by 2.2% in the last quarter, but prices have strengthened recently, according to SG Cowen.

Paid search has become increasingly more popular because the advertiser is charged only for those clickthroughs to his/her site. Marketing people like that – they are paying only for those readers interested enough to make that “click”.

Jupiter Research forecasts that search engine advertising will grow at a compound annual rate of 12% whereas display ads will grow at an annual compound rate of 7%. Classified advertising will grow by 10%, rich media by a 25% and streaming media by 30%, although at $943 million that will still pale behind the others.

The classified forecast spend of $4.1 billion by 2010 should put real fear into newspaper publishers as that will be money taken mostly from their pockets unless they can attract those advertisers to their own newspaper web sites.

And this type of revenue growth is not just limited to the US. In Germany, for instance, Europe’s largest media market, online advertising is forecast to grow by some 30% to around $915 million this year, according to the German Federal Union of Digital Economy. But that figure is still only about 10% of the US 2005 Online spend.

And while Google can look forward to its search engine revenues ever increasing, not everything is going its way. The company is being accused in a class-action lawsuit that it has overcharged advertisers by exceeding their daily pre-set budgets on what they would spend each day for search engine advertising.

“The claims are without merit,” according to a Google spokesman.

Major media groups have been reporting robust online revenues for Q2. Companies like the New York Times and the Wall Street Journal that besides their own popular newspaper web sites have also spent hundreds of millions of dollars this year on increasing their Internet portfolios have reported their Q2 online advertising revenues up around 30% or more while print languishes with little growth.

The latest to make a similar report is the Washington Post, which saw an overall corporate quarterly revenue decline of 7% in Q2 from a year ago, but online ad revenue grew 21% compared to a fall of 2% for the print edition.

What must have been particularly disappointing to the Post was that its print circulation dropped 4 per cent for the daily newspaper, and 3.5% for the Sunday edition despite major efforts over the past months to arrest the decline.

Newspapers in general are suffering on several fronts. Classified sites like Craigslist are ciphering off advertising worth in the hundreds of millions of dollars. Even traditional advertisers are taking second looks at where they spend their money explaining why Internet advertising in general is increasing with double-digit percentage gains while traditional media is seeing little if any advertising increases.

Circulation drops like the Post’s are not uncommon, and the young readers are said to be reading free tabloids or have gone to the Internet.

And a new study indicates that despite their best efforts traditional media are losing their battle to woo back the teenagers from the Internet. According to a major report for the Pew Internet & American Life project, 76% of teens aged 12-17 in the US now get their news online. Representing some 16 million readers, that’s a 38% increase since 2000 in the number of teens getting their news online.

It all goes to explain why there were reports last week, unconfirmed, that News International, having announced last month it would spend $580 million to buy Myspace.com., a social networking site where members with home pages communicate by forming extended networks of friends,was in discussions to buy  Skype (voice over Internet) with an asking price said to be in excess of $3 billion.

No deal was done and Skype is supposedly eyeing an IPO. After seeing Google nearly quadruple its IPO price within 12 months, and with online advertising revenues forecast to double within five years, who can blame it?