Dec. 28 (Bloomberg) -- The move to online advertising is happening faster than analysts anticipated as companies devote more of their budgets to the Internet than traditional media.
The market for online ads will increase 32 percent to $16.6 billion next year, fueling growth at companies including Google Inc. and Yahoo! Inc., Credit Suisse First Boston analyst Heath Terry said in a research report. He had previously forecast 21 percent growth.
Sales of online ads that have animation, sound or interactive features will jump 66 percent next year to become the fastest growing area of Web ads, Credit Suisse predicts. Yahoo, the most-visited Web site, and No. 1 search-engine Google are winning business at the expense of publishers and broadcasters.
``We're seeing a shift to a more diverse set of media choices,'' said Mary Baglivo, chief executive officer of the New York office of advertising agency Saatchi & Saatchi. ``Certainly a move away from what had traditionally over the years been the vast majority television and print.''
Saatchi & Saatchi's clients include Cincinnati-based Procter & Gamble Co. and Detroit-based General Mills Inc. The agency is a unit of Paris-based Publicis Groupe SA, the world's fourth- biggest advertising company.
Almost half of the ad executives in a Credit Suisse survey intend to increase Internet spending by almost 30 percent in the next year, according to the brokerage's Dec. 9 report. The study, conducted by New York-based market researcher TNS Media Intelligence for Credit Suisse, included 90 companies and 10 ad agencies, with average accounts of $22 million.
Rising Shares
Shares of Mountain View, California-based Google have more than doubled this year and are worth five times their August 2004 initial public offering price of $85. They gained 24 cents to $424.88 at 10:28 a.m. New York time in Nasdaq Stock Market composite trading. Shares of Sunnyvale, California-based Yahoo climbed 13 cents to $40.07 and had risen 6 percent this year before today. They gained 67 percent in 2004.
Sponsored links next to search results, the main source of sales for Google, and graphical display ads, like the banners seen on Yahoo's site, will remain the two most popular types of online ads in 2006, Credit Suisse's Terry forecasts.
Still, display ads will be the slowest growing ad type next year as spending on animated, or so-called ``rich media'' ads, increases, according to Credit Suisse. Terry forecasts that group will overtake banner ads in 2008.
``Video is the most compelling and emotive creative medium available for advertisers,'' said Nate Elliott, an analyst with Jupiter Research in London. ``It does the best job of creating emotion.''
Doritos Video
Hewlett-Packard Co., the world's biggest printer maker, last week placed animated spots for its Photosmart photo printer on Yahoo's home page, and 30-second spots that roll before music videos on Yahoo Music. Other video advertisers on Yahoo included PepsiCo Inc.'s Doritos, and Detroit-based General Motors Corp. PepsiCo is based in Purchase, New York.
Ad executives in the Credit Suisse survey last month slated the biggest part of their budgets for Internet ads, compared with a No. 3 ranking behind magazines and broadcast TV in a survey conducted during the previous quarter.
Animated and video ads command a premium over static graphics. Companies paid an average of $10.81 for every 1,000 people that saw animated ads in November, compared with $2.85 for banners, according to Nielsen//NetRatings, which tracks Web use. Spending on animated ads rose 23 percent from a year earlier, while banner ad spending more than doubled.
30-Second Spot
Most Internet video ads are still just duplicates of 30- second spots made for television as companies aren't willing to invest in both formats, Elliott at Jupiter Research said.
That's changing as companies find cheaper ways to make online video spots and link them to TV campaigns, said Rosemarie Ryan, president of the New York office of J. Walter Thompson Co., an advertising agency whose clients include New York-based Merrill Lynch & Co. and Dearborn, Michigan-based Ford Motor Co.
The agency, founded 140 years ago and owned by London-based WPP Group Plc, added a digital video production studio to its New York office that can make 10 online video or animated ads for the price of one TV ad, Ryan said.
Advertisers including Johannesburg-based De Beers are now also linking their offline and online campaigns.
De Beers, the world's No. 1 diamond supplier, this year developed a campaign with a 30-second commercial on television that set the scene of a man struggling to get home to his wife for the holidays. The story continued through 13 extra video clips on the Web. The final episode then followed on television.
``It's a seismic shift for our business,'' Ryan said. ``Advertisers know they have to find new and interesting ways to get to people.''
To contact the reporter on this story: Jonathan Thaw in San Francisco at jthaw@bloomberg.net.
