The end of banner ads?

Could it be? Will advertisers finally sour on the ad format that no one clicks on but everyone thinks is necessary?

The analyst firm Research and Markets is predicting that spending on display ads will peak this year at $12.6 billion, and then enter a steep decline. Within four years, the firm estimates that that segment of the online advertising economy will drop to less than half of this year’s mark.

Why? Clever brands are warming up to the social Web, and realizing that they can do more with less. It’s what R&M calls “promotion,” as opposed to traditional (and paid) “advertising.”

Advertisers are desperate to unlock the marketing potential of the democratizing Web. How to build a brand online and insert it into the conversations taking place across the social networks and UGC sites is a favorite topic at advertising conferences these days.

Problem is, advertisers are having a tough time figuring out how to do it. Some don’t think it will ever happen. MySpace and Facebook have captured the imagination of a generation of content producers, and their output has been prolific. But is that really the sort of material that you want your company’s logo next to?

While it refers to the Internet as growing “more legs than a centipede,” R&M isn’t going too far out on the social networking limb with its advertising/promotion prediction. The firm’s looking ahead to a spike in spending on, among other things, old-fashioned PR. It’s predicting that the broad category of online promotions will nearly triple over the next five years to $22.8 billion.

If that prediction holds, there will be a seismic shift in how ad dollars are spent online. If the display market is going to hollow out to half its current size, with paid search “likewise facing a luster loss,” does this research firm see something that Google and Microsoft don’t?

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