October 15, 2003

More Providers Jumping on Contextual Advertising Bandwagon, As Revenues Rise

According to META Group, Inc. (Nasdaq: METG), as companies re-evaluate marketing strategies to include more contextually relevant Web advertising and search engine optimization in lieu of mass e-mail and telemarketing, smaller commercial search vendors and larger companies with search services will begin vying for market share currently held by market leaders Yahoo and Google.

META Group predicts the contextual advertising market will reach $5 billion by 2006, as more providers continue to jump on the bandwagon. Commercial search vendor LookSmart recently joined the $2 billion contextual advertising market by adding pay-for-performance advertising services to its portfolio of offerings and positioning itself as the only "independent" provider of contextual advertising services, now that Yahoo has acquired Overture to join Google as the dominant market players.

"Unfortunately LookSmart's 'independent' message cannot be translated into enough value to advertisers to compensate for the small size of its current affiliate network," said Timothy Hickernell, vice president at META Group. "The subsequent announcement by Microsoft that it will not renew its services with LookSmart -- services that make up 65% of LookSmart's listing revenues -- is further proof that it's too late to build affiliate networks that can compete with Yahoo/Overture Services and Google, without one or both of the public portal giants (MSN and AOL) as subscribers."

Recently, MSN and AOL have been pressured to declare to the market what their long-term strategies will be, including building, buying, or partnering for commercial search and contextual advertising services. They each have sufficient customer bases for contextual advertising services to generate net revenue from integrating these new services.

Because of the potential revenue from an expanding market, META Group predicts AOL and MSN will either acquire commercial search services, including contextual advertising services, or release their own proprietary systems by 2005. This would result in the commercial Internet search and contextual advertising market being dominated exclusively by Yahoo, Google, AOL, and MSN by 2006.

"As long as there are at least two service networks and dozens of service resellers, there will be sufficient competition in the market to ensure innovation," added Hickernell. "Since advertisers bid against each other for search terms, creating individual search-term markets within each vendor's service network, even dominant vendors do not have monopoly power to set prices."

Source: Business Wire.com

        

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