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Paid search growth may slow
Monday, August 09, 2004
A new Internet advertising forecast shows slower growth for
paid search listings in the next five years, a projection that raises
questions about Web search leader Google's prospects as it goes
public.
Advertisers will more than double spending on paid search to $5.5
billion in 2009 from $2.6 billion this year, but the annual growth
rate will decelerate to 11 percent in 2009 from 65 percent in 2003,
according to a report by JupiterResearch, due to be released on
Monday.
JupiterResearch, a division of Jupitermedia, has forecast total
online ad spending, including search and display ads like banners,
will nearly double to $16.1 billion by 2009 as consumers devote
more time to the Web and new technologies make it easier to create
and track campaigns.
"This market has grown so phenomenally over the past number
of years. Now it's maturing," said JupiterResearch analyst
Nate Elliott. "Google clearly thinks that they need to diversify
... they have to know this growth is going to slow."
Google's name and virtually all of its revenue is synonymous with
Internet search, delivering targeted ads linked to the keywords
used in Web searches. After posting double-digit sales growth in
every quarter since 2002, Google grew revenue by 7 percent in the
quarter ended in June.
Questions about growth have clouded Google's much anticipated initial
public offering, which could reap as much as $3.3 billion and value
the entire company at more than $36 billion. No date has been set
for the IPO, but bidding could begin as early as this week.
Google's future stock performance will be tied to how rapidly paid
search growth decelerates and how other business ventures generate
new revenue for the company, said Mark Mahaney, analyst at American
Technology Research.
Mahaney also expects a deceleration in paid search from about 100
percent growth this year to 75 percent next year and even further
down the line.
"You have to assume that three years from now, Google is more
than just a search engine," said Mahaney, who expects the Google
IPO would be priced at the lower end of a $108- to $135-per-share
range. "Seventy-five percent of your investment is based on
your outlook on paid search and 25 percent on your belief that this
company can successfully generate other revenue."
Google has been testing additional ventures, including its comparison
shopping site Froogle, Gmail electronic mail service and local search
advertising as it faces growing competition from Yahoo and Microsoft's
MSN.
According to JupiterResearch, local search spending will grow more
slowly than total online advertising or paid search, rising to $879
million in 2009 from $502 million this year.
"There's not a really attractive model here for local marketers"
from restaurants to dentists, Elliott said. "They still want
you to walk through the door."
The rise in search prices per click also will lose steam, growing
26 percent to 36 cents in 2004, then slowing in 2006 to incremental
annual growth of 1 cent to 2 cents per click.
At the same time, advertisers have already begun to scrutinize
the rising cost of search marketing and demand more precise ways
of tracking the effect of their spending"
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