Reality check for online advertising?
July 12th, 2006McKinsey Quarterly has conducted research (sign up for free to read the whole article) that indicates that demand for digital advertising will soon outstrip supply. Result? Higher prices.
On video ads: “Short-term mismatches between supply and demand appear greatest for the
video ads that interrupt or precede online content, such as news clips.” McKinsey expects the demand (in the US) to grow from a current assumption of $600 million to anything between $1.4 billion to $3.2 billion…(Not sure about you, but what is the value of an estimate that ranges between 1.4 and 3.2 billion?)
Paid search: “Annual growth in the overall number of searches is slowing, from 30 percent in 2004 to 20 percent in 2005.” “but without significant changes in consumer click-through rates or in the prices advertisers are willing to pay, we estimate—using our analysis of the prevailing cost per thousand impressions (CPM) and Nielsen Media Research figures on paid search—that the maximum current value of paid-search advertising is about $7 billion. Meanwhile, our analysis of current and forecast page views, ads per page, and CPM rates suggests that advertisers will want to spend $9 billion to $12 billion on paid search in 2007, up from around $5 billion in 2005. Even without severe supply bottlenecks, there won’t be room to handle rapid near-term growth.”
This is McKinsey, and I am unworthy but there is no mention of the impact issues like click fraud might have on the reputation and desirability of paid search advertising. Shouldn’t that be taken into consideration when you make projections into the future? I am sure that some media companies will find these figures handy in a board room presentation but I question the real value. How about you?
