Internet Advertising 2005 – The Year That Was

In 2004, internet advertising grew 32.5% to roughly $9.6 billion, higher than expected and a new record for the decade old industry. While the number for 2005 hasn’t been reported, most expect it to easily exceed $12 billion, or a second year of 30+% growth. Quite a few articles have dedicated themselves to the year that was, and in all actuality the world might not need another one, but thanks to gentle prodding from readers, that’s exactly what we will be doing in this article. Thus, in no particular order, here are those things that either shaped internet advertising in 2005 or simply captured our attention.

· Repeat users mean big money. Whether old school sites such as About.com, IGN, and NeoPets.com that previously looked uninteresting, especially from a dotcom survivor’s perspective, or “Web 2.0” technologies that also have built a user base, such as Weblogs.com, MySpace, Bloglines.com, and Skype became the rage, going for prices per user that would make any zip offer creator envious.

· Social networking is a real business. With all the talk of MySpace last year – who could forget its $580 million price tag – it’s hard to believe that former forerunner Friendster will turn three years old in March. Much as eBay enabled the growth of another billion dollar business, PayPal, the social networks offer an equally powerful platform that has only begun to be realized. A cautionary note though, it’s not as simple as being a user-generated site or allowing people to play degrees of separation. It must have the ability to mobilize its audience. With MySpace, that equals the ability for users to launch a 500,000 album selling band that has no major label support. Users have the chance to potentially know these bands before they become big and if they had their own it could happen to them. Friendster has….exactly. For a fun comparison of their growth see this Alexa comparison.

· Google distances itself from Yahoo. From January 2005 through April 2005 both companies’ stocks grew at the same relative percentage, which in this case was negative growth, both down close to 10% for that four month period. By July Google’s stock had risen 50% on the year, and by year end just north of 100%. Yahoo’s stock on the other hand ended the year up less than 15%. Google’s outrageous stock growth this year is only exceeded by its 100% growth in Q4 of 2004 where they went from $100 to $200.

· Google shapes the ad world and promises to do the same for personal computing. They single handedly reduced the number of pop-unders, gave companies such as Kanoodle a second chance, and help thousands of web sites make more than they thought they could. Now generating more revenue from ads than the largest television network, no mention of advertising can occur without their name being raised.

· Tagging and web 2.0 make the web a more organic place. 2005 was the year of del.icio.us, of Flickr and countless other sites where transparency in their organization became commonplace. Not only that, but they taught users to enter keywords related to their content so that they and others could find it later.

· Free ipods are the bane of users, the cash cows of networks, and they might even have longevity. In a trend that began in 2004 and continued in earnest through 2005, the incentive promotion space, proved that it had what it takes to headline at Ad:Tech and those operating in it stepped out from the shadows. Those in the space, showed in 2005 as they have before that they don’t mind competing for title of best remnant ad because as they, and certainly MySpace know, it’s a lot of ad impressions.

· Comparison shopping – who knew…other than eBay, Experian, Scripps, and Brian Lewis. With well over $1.5 billion spent in comparison shopping acquisitions in 2005, this group represents the tip of the iceberg for aggregating like minded groups with high cummulative transaction values layered with judiciously applied ancillary services such as user generated ratings and reviews. While you can search Google and get to Best Buy, but these companies have shown they can get Best Buy more clicks their way. As click boosters and reviewers, we’ll see them in other verticals and wish them luck as Google ultimately tries to disintermediate them, even though they are currently large AdWords clients.

· Adware struggles, but the targeting they popularized flourishes. Perhaps not accurate, but behavioral targeting companies today might not have the momentum they do were it not for adware. These non-desktop companies can offer advertisers the targeting they want without the risk they would otherwise have to endure. Using behavioral targeting, companies such as Revenue Science were able to increase the value of lesser inventory by correlating the user as one that participates in the higher value segment.

Hindsight is 20/20; with so much happening so fast, I would settle for 20/40. So, what will happen in 2006? Your guess is as good as mine, but just in case you think otherwise, head back to the homepage or click here for “Internet Advertising 2006 – The Year That Will Be.”