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Jupiter: Search Powers Online Ad Revival

Paid search, which just two years ago represented just over one in every ten dollars spent on Internet advertising, will power an online advertising revival that is poised to make the industry worth $14.8 billion in 2008, according to Jupiter Research.

Jupiter pegs the paid search market as worth $1.6 billion this year, after growing at a 48 percent clip. Over the next five years, the researcher expects spending on search to increase by a compound annual rate of more than 20 percent. In 2008, Jupiter forecasts companies will spend $4.3 billion on search, accounting for 29 percent of the $14.8 billion online advertising market.

"Search is definitely driving a near-term online advertising recovery," said David Card, Jupiter Research's vice president and research director. "Search's impact is monstrous."

The research group, which is owned by the parent company of this site, released the findings of its annual online advertising forecast on the first day of the Jupiter/ClickZ AdForum on Wednesday.

Jupiter expects traditional display advertising on the Internet will turn the corner in 2003, retreating slightly from 2002, as AOL continues to drag down industry numbers, but growing solidly in the next five years. In 2008, display advertising is forecast to reach $7.1 billion.

Card said online advertising would grow at a fast clip in the next five years, thanks to sites better utilizing inventory and broadband penetration reaching 38 percent of homes in 2008.

Online classified advertising is forecast to grow solidly, from $1.6 billion this year to $3.3 billion in 2008.

By 2008, Jupiter expects online will grab 6.1 percent of total advertising spending, up from 3.3 percent this year.

While small companies pioneered the search industry, drawn by pay-for-performance deals that fit their modest marketing budgets, Jupiter expects a shift to big-budget advertisers. In its April survey of marketing executives, 82 percent from large companies and 61 percent from smaller companies surveyed by Jupiter said they were poised to bump up their spending on search marketing.

Some signs of this trend have cropped up at search companies. Industry leaders like Google have teams of sales people focused on winning business from large clients in key vertical markets, such as travel and financial services. Even a second-tier player like FindWhat.com recently reported a decline in its advertiser base, as its executives plainly stated that the company was focusing on building its rapport with ad agencies.

The attention of big-budget advertisers will drive a growing sophistication in the industry, with improved analytics and optimization techniques. Thanks to these, Jupiter expects the industry's average revenue per click to increase from 27 cents today to 35 cets in 2008.

"As a form of direct-response advertising, search is clearly leading the pack," said Ted Meisel, Overture Services' chief executive, in a keynote address at the conference.

One major wildcard for search is the degree search providers can provide local search, which Jupiter says could further increase participation in the industry. Google has made some strides in providing local search listing through creative deals with Mapquest and Weather.com, and CitySearch has its own local search product. Within the next year, Overture Services is expected to roll out its own local search offering, which figures to be integrated deeply in Yahoo!, which recently agreed to acquire Overture.

For the short term, search is poised to overshadow other aspects of online advertising, making up for continued sluggishness in display advertising because marketers see results. According to the executive survey, 74 percent of big-budget marketers rated search marketing as "better" or "much better" than banner ads.