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Thursday, October 4, 2007

Death of display ads greatly exaggerated

An article on Reuters today (US Web ad spending nears $10 bln in first half '07) discussed how ad spending on the Internet continues to increase, putting pressure on other media like newspapers, TV and radio.

This is a quote from the last two paragraphs:

"Search advertising, led by Google, remained the most popular form of online marketing and accounted for 41 percent of the money spent at $4.1 billion in the first half of 2007.

Graphic display advertising, such as banners, grew to account for 32 percent at $3.2 billion, compared with $2.4 billion in the year-earlier period."

There has been much discussion on financial blogs about how display advertising is losing ground to other kinds of ads, how it is hopelessly Web 1.0 and that companies dependent on display ads are doomed. Yahoo is usually mentioned in these discussions as a prime example of a site dependent on display ads and, as if to prove the point, we all know how badly Yahoo is doing these days.

The fact that display advertising spending has increased by one third over the previous year shows that display ads still have considerable life left in them. Witness Google buying DoubleClick for over $3 billion dollars; after all, a large part of DoubleClick's business is serving display ads. Google realizes that display ads are a necessary part of a full-service ad platform and, combined with search advertising (Google's specialty), display ads will allow the company to extend its reach with advertisers and publishers.

Yahoo's problem is not that they are dependent on display ads; Yahoo's problem is that they are not executing as well as they should be in other areas.

Disclosure: author owns no shares in GOOG or YHOO

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