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Online advertising roars back
Results from the most recent quarter prove that the medium has plenty of life left in it.
February 18, 2004: 4:20 PM EST
By Eric Hellweg, CNN/Money contributing columnist

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SAN FRANCISCO (CNN/Money) - It's hard to believe that online advertising generated more revenue in the fourth quarter of 2003 than in any other quarter since 1996, when the Internet Advertising Bureau and PricewaterhouseCoopers started tracking this statistic.

The quarter saw revenue of approximately $2.2 billion, and the total for the entire year was $7.2 billion. That's right: At a time when there are no sock puppets, no Floozes, no Webvans, and no cannon-fodder gerbils, more money was generated by online advertising than ever before.

"It's the biggest single quarter the interactive industry has ever had," says IAB president and CEO Greg Stuart, pausing a bit between each word to give the statement extra heft. "It's a big deal, especially given that a lot of people wanted to claim the death of Internet advertising two years ago."

The question on the minds of tech investors, then, is, Who is making the money, who's spending the money, and how can I get in? Let's take a look.

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According to Nate Elliott, an associate analyst at Jupiter Research, the two big growth drivers in Internet advertising are search (keywords) and rich media.

Jupiter predicts that the total online advertising market will grow from $7.6 billion in 2004 to $14.8 billion in 2008. As I discussed in an earlier column, rich media, with its motion pictures and sound traveling over broadband, should skyrocket in the near future.

As search-based advertising grows, the usual suspects -- Google, Yahoo! and its Overture division, and MSN -- should continue to do well. But keep an eye on companies such as Verizon, which is looking to extend its Yellow Pages franchise with localized search offerings.

Many observers believe that local business searches will be the next big growth area in search advertising. Right now, most caution that the technology isn't quite effective enough to generate increased revenues.

"Local search advertising isn't doing anything right now," Elliott says. "But companies are working very hard on it." Elliott cites a statistic showing that roughly 90 percent of all search marketers are small to midsize businesses; if done right, offering local search to those small companies could prove lucrative.

Other beneficiaries of the expected growth in local search will be the companies that serve online advertisements. Leader DoubleClick is already doing fine, having just announced that it served 203.8 billion ads in the fourth quarter of 2003, up 43 percent from a year ago. Rich media accounted for 40 percent of those ads. I like DoubleClick -- its stock price has held relatively flat while the sector has rebounded. And I'm not alone: Since Oct. 27, four analysts have upgraded their calls on the company.

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So who is spending money on online advertising now that the fly-by-night companies are gone? In short, everyone.

"Marketers have figured out that [online is] where consumers have moved," Stuart says.

Big companies are taking chances and going long on Internet advertising. Super Bowl viewers saw an interesting attempt at cross-media marketing with the Mitsubishi cliffhanger ad that pointed viewers to www.seewhathappens.com for the conclusion of the commercial (and more information about the car).

And it's working. According to trade magazine AdWeek, the site received more visitors in its first 24 hours than www.mitsubishicars.com gets in an entire month.


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.