Revenue From Display Ads to Grow 20% by '09

J.P. Morgan Analyst Bullish on Underrated Online Ads

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NEW YORK ( -- Don't overlook display advertising in 2008 -- this format, which is elderly in internet years, still has some growth left in it if one major analyst's prediction pans out.

J.P. Morgan is bullish on rates based on the cost-per-thousand viewers for graphical advertising, citing improved technology and monetization as reasons why display CPMs will accelerate by 4% in 2008. It also predicts CPM-based display ad revenue will rise 20% and reach $10 billion by 2009.

'Difficult year'
Last year was a "difficult year" for display advertising, said analyst Imran Khan on a call outlining his 2008 internet trends. "In 2007, we saw pretty significant influx of inventory coming from social networks sites like MySpace, Facbeook and e-Commerce sites started trying to monetize their page views. That drove tremendous amount of new inventory and as a result we saw fragmentation of audiences ... and a divergent shift from premium to remnant inventory."

Coupled with better monetization is more demand for online advertising. Mr. Khan suggested inventory should tighten because of events such as the presidential election. He also believes broadcast TV's struggling ratings, the writer's strike and a tighter cable scatter market should bolster online coffers as marketers seek additional venues for their marketing dollars.

Who benefits the most? Yahoo, which has spent more than $1 billion in 2007 buying an ad network and exchange. The company in 2008 has the opportunity to make more money per ad as it improves the monetization of its remnant ad inventory through exchanges, geographical and behavioral targeting.

"If you can improve the yield slightly there's a tremendous opportunity to increase overall revenue," Mr. Khan said.

He said he's bearish on mobile display ads for 2008 but likened it to video advertising. "There's a lot of talk, not a lot of dollar," he said.

The bad news
The bad news? Mr. Khan sees continuing difficulty for the beleaguered newspaper industry. He noted that newspaper ad revenue declined 8.6% in 2007, far faster than the declining rate of 1.7% rate in 2006.

"You're seeing newspaper-decline rate accelerating, and that's very positive for both search and display advertisement business," he said.

Similar to recent history, search is the brightest spot. Globally, the search market will reach $60 billion by 2011, the firm said. It noted that it initially underestimated at 39% global search growth in 2007; it has revised those estimates to 48%. In 2008, it again expects 39% growth to more than $30 billion.

If there's any damper to 2008's web predictions, it's that regulatory pressure is expected to heat up.

"You saw the M&A [merger and acquisition] activities under the magnifying glass, the Google-DoubleClick deal getting lots of attention," he said. "And privacy concerns will be a key thing, especially in the social networking space ... that will continue to come under scrutiny, along with search."
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