Monday, January 2, 2006

The New Bubble: Ads Growing, But Enough for the Hype?

Ken Yarmosh at Corante notes that in spite of optimistic forecasts for ad growth from financial analysts at CSFB pointing towards 32 percent overall growth in online advertising (Bloomberg coverage) there is still a finite pool of advertising that's not likely to fuel every new business plan tooling up on Web 2.0 dreams. Ken's likely on the money overall, given the enormous share of online ad growth that's being absorbed by major outlets such as Google and Yahoo: there's only so much left over for others through traditional channels. It's a bit reminiscent of business plans for enterprise software products a few years back: everyone built the same spreadsheets and came up with the same buyers willing to buy a supposedly infinite supply of $250,000 software packages. There are very optimistic expectations for online ads but it's also important to recognize that ads are not going to be the only story for online profits in content for 2006. Subscriptions will be increasing along with one-off purchases as complements to advertising, even as new ways of creating value from online context provide deeper value from each online encounter through advertising and lead generation tools.

The real challenge for business plans relying on ads in 2006 is being able to have systems in place that are going to be able to target audiences with enough precision to satisfy increasingly sophisticated online advertisers. There will be no lack of online ad dollars this year, to be sure, and a continuing explosion of pages on which those ads can appear. But being able to move into higher-value relationships through more sophisticated online marketing will move the overall pie into channels that will favor sophisticated advertisers both in traditional and user-generated media. So have fun, business planners - just make sure that you have the right ad tools at hand that will allow you to grow your ad base more effectively than your competitors.
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