Special Report: Digital

NEW YORK Web 2.0 may have the online ad world atwitter, but in 2008, the industry’s core segments—search and display advertising—will continue to account for the bulk of business.

The newer areas of explosive growth, including online video and social networking, likely will continue to gain momentum next year, however, as digital media executives toil to translate big audiences into serious dollars.

National search, display ads and classified will remain among the largest online ad categories in 2008, per Veronis Suhler Stevenson. But, the firm said, online video, user-generated content, mobile and local all are segments that will continue to enjoy explosive growth in the year ahead, as digital media overall is expected to remain the single fastest-growing medium.

That no-end-in-sight growth should continue to benefit Google, the dominant force in search, VSS reported, as well as leading portals Yahoo, AOL and MSN—despite the major strategic challenges facing all those players.

Pure-play online advertising was the fastest-growing sub- segment of the pure-play Internet market, surging 36.3 percent last year to $15.11 billion, driven primarily by the national online ad market, particularly search advertising, per VSS.

The mega players will continue to command dollars, and the fastest growing Web properties are certain to make major inroads in the ad business next year, as their sheer numbers are a force to be reckoned with. To wit: MySpace’s user based swelled by 23 percent in August versus August 2006, reaching a staggering 60.3 million uniques, according to Nielsen//NetRatings. YouTube’s audience also surged, growing 66 percent to 56.5 million users. And Facebook has really been wowing ’em, its audience skyrocketing 117 percent to 19.2 million uniques last month.

Deborah Williamson, eMarketer senior analyst, predicts that spending on sites like MySpace and Facebook will climb exponentially, rising from $900 million this year to $1.4 billion in 2008. That figure represents “still a relatively small percentage,” she pointed out. “The challenge for social networks is that they are still trying to figure out the best way to monetize that audience.”

Williamson explained that MySpace still uses multiple ad networks to unload its huge inventory, at extremely low CPMs. Thus, for these sites in 2008, “targeting is key.”

Online video may experience more rapid growth given the degree of ad-friendly, professional content finding its way online, experts say. eMarketer projects that online video ad spending will soar 74 percent to $1.35 billion in 2008, still representing a small slice of the overall Internet ad pie.

All eyes will be on YouTube next year, as it attempts to finally cash in on Google’s $1.65 billion investment. “Google hasn’t made real money with YouTube,” said analyst David Hallerman. The company’s most recent innovation, InVideo ads, is considered a good start—and is a better strategy than forcing pre-roll video ads into that environment, as some have expected might happen, said Michael Kelley, partner, media practice PricewaterhouseCoopers. PwC research has found 50 percent of consumers say they would skip video with pre-roll ads.

To date, Hallerman said, the biggest success in online video investment is via broadcast TV network sites. “Long-form video works better for advertising,” he said.

Plus, the networks “have the content, and can sell packaged deals,” Hallerman added. By next year, the industry should have a better handle on just how well the nets’ online video resonates, ranging from the CBS Interactive Audience Network to Fox/NBC’s Hulu.

Hallerman said that while economic conditions will, naturally, impact ad spending, Internet should be relatively safe in ’08. “The Web is not going to be the first thing they cut,” he said. “When times are tough, brands tend to gravitate to something they can prove to their bosses. Cover your ass becomes more important.”