NEW YORK (CNN/Money) -
Just last week, I wrote about the new advertising cold war that's expected now that Yahoo has dumped Google as its search partner. But even as I wrote that, I was having doubts about the future of online advertising.
Yes, keyword searches are growing fast, but with Microsoft building pop-up blocking into its upcoming Internet Explorer upgrade, and with some content sites reporting that 25 percent of the pop-up ads they serve are already blocked, I thought the sector might play a zero-sum game in 2004.
My fears are subsiding. Here's why: Yesterday, New York-based online advertising company Unicast unveiled a new advertising format that should help the Net advertising market grow a little this year but that portends even greater things for the years ahead.
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The new format allows 30-second, motion-picture-quality video advertisements to play in a (relatively) unobtrusive manner on Web sites. The first advertisers to sign up for the service include AT&T, Honda, McDonald's, and PepsiCo. The first ads will run on sites such as ESPN.com, GameSpot, and MSN.
"This is a new and better way to advertise online," says Nate Elliott, an analyst with Jupiter Research New York. "Instead of having to get users to come to a video site to see full-motion video, you can bring it to them."
"This is a signal that the Internet and TV will soon be merging," says Denise Garcia, an analyst with Gartner.
So what's the big deal? On the face of it, the development looks simply like a technology enhancement. While the delivery method for the clips is a technological advance, the real reason analysts and Net firms are excited is that this technology opens up television advertising budgets to the Internet for the first time.
Previously, most interactive advertising money came from a company's direct-marketing budget, which typically constitutes only 5 to 10 percent of a company's ad budget, according to Gartner.
With the new video-streaming format, companies' television advertisements can run "as is" online. No longer do advertisers need to commission and create an entirely different line of "creative" for online use. They can simply copy and paste their television ads and have them run online.
What's more, Net companies will be able to charge a hefty premium for the video ads, at least 5 percent more than what they're commanding for their current top product, according to Garcia.
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"Any site such as Yahoo, MSN, and AOL that relies on ad revenues will see a benefit from these ads," she says. "They will charge more for them."
Despite the higher premium, the ads will still be cheaper for advertisers than commissioning an online-specific ad campaign or converting a television ad to Macromedia's Flash format to make it suitable for online viewing.
Jupiter Research projects that, in part because of this development in rich media ads, the Internet ad market will grow by 20 percent in 2004.
That's good news for portal sites, which, despite their best efforts to diversify their revenue streams away from a reliance on advertising, still depend on the sector for a healthy chunk of their incoming money. If this new format really takes off, as I believe it will, look for sites such as Yahoo to pursue the auction model for selling the limited video ad space.
If that happens, the premium these sites command for video ads will likely shoot far higher than the estimated 5 percent increase.
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