J.P. Morgan: Online display ads set to bounce back

Posted by Erina Lin on January 5, 2010 at 4:29 PM

The stagnant display ad space should be back on track this year, according to the J.P. Morgan analyst Imran Khan, who just released his annual report, Nothing but Net 2010 Internet Sector Outlook. He expected that display ad spending will boost by 10.5 percent in 2010, after a 5 percent drop last year, with display CPMs up by 5 percent, Media Week reported.

However, "top Web publishers are faced with abysmal click through rates, irrelevant ads, and brands which have been spoiled by the ease of third party networks that promise cheap premium inventory", said Khan, after a year when display advertising was undervalued, and the market was controlled by price-fixated performance advertisers. This will make "a huge disparity between brand and performance spending on the Web," according to the study.

Although the total media spending is up a little toward direct response (52 percent versus 48 percent for branding), only 27 percent of Web spending is allocated for branding. In general, merely 5 percent of the branding money is online, compared to 30 percent of direct dollars, according to Media Week.

Thus, Khan suggests publishers embrace display, which is already in the works. He pointed out that if sites could create new forms of premium banner ads, and better use data targeting and time based selling, it should help the industry recover this year.

He also doubted the sites' reliance on ad networks, and said many of these premium selling tactics benefiting Yahoo. However, there seems to be no way ad inventory could be reduced for the social networking sites, which are growing hot.

According to the study, in 2010, "ad driven monetization will remain very difficult for social networking sites," due to the sheer volume of inventory as well as low response rates. However, "ad monetization shouldn't be social networks' focus," Khan said. They should instead "operate like credit card companies--focusing on earning revenue through carriage fees rather than monetizing directly from consumers," according to Digital Media News.