paidContent.org - JP Morgan Sees Long-Term Dominance For Performance-based Ads; Online Video Loses Luster

It's not surprising that during a downturn, the clear metrics and ROI offered by performance based ads are looking more attractive. But in his wide-ranging '09 outlook, JP Morgan analyst Imran Khans expects marketers to treasure performance-based ads even when the larger economy begins to grow again. So the market share gains performance ad have achieved over the CPM-based look pretty durable and mean continued struggles for display ads.

The report, Nothing But Net: Outlook for Global Internet Stocks in 2009 (PDF), predicts that the mostly performance-based U.S. search ad market will rise 10 percent in 2009 to nearly $16 billion. In contrast, display ads, which includes both performance and branded advertising, will grow only 6.3 percent to $8.4 billion this year.

?Bearish online video: Khan expects the accelerated shift to performance ads having a dampening effect on the growth of online video ads. Even in a series of downward revisions, online video ad growth still seemed poised for healthy gains this year. For example, at the end of November, eMarketer forecast online video growth of 44.9 percent, which was still nearly half of the 81 percent growth rate the researcher predicted for 2008. Khan believes that online video is headed for a considerable slowdown because one, it's still reliant on the CPM model, as opposed to performance-based measurements like cost-per-click or cost-per-action based display. And unlike television, which still can count on advertisers to respond to CPMs, online video can't guarantee viewership for any specific video the way TV does in the upfront model. Plus, considering the unpredictability of popular videos, they uneven quality and the continued battles over copyright, JP Morgan doesn't expect online video to have great prospects for the next few years. However, Khan is intrigued by Google's experiments with an e-commerce platform?i.e, performance-based model?for YouTube videos. For example, if a user watches a a song featured in a music video, they can click on a link that lets them buy music directly Amazon (NSDQ: AMZN) and iTunes, with YouTube getting a cut of the revenue. More after the jump

?Social nets need new approach: Looking at the projected slump in online ad sales for sites like Facebook and MySpace, JP Morgan strongly advises that online communities look for sources other than display for revenue. In particular, the report offers a few possible routes to profitability, including greater use of cost-per-action ads, lead gen, sales of virtual items, connecting to classifieds or e-commerce sites, and charging for premium membership, as LinkedIn and Classmates do.

?Mobile looks good long-term: But as for the near-term, the long-awaited explosion for mobile ads will simply have to wait for a better economic environment?not to mention better phones and technology, Khan says. although mobile phone penetration is high at 84 percent in the U.S., , the mobile search market is in the early adoption stage. In Q108, only 15.6 percent of wireless subs were using mobile web, according to Nielsen Mobile data. Even within this small subset of mobile internet users, usage drastically trails that on PCs. Nielsen Online says that a PC online user visits more than 100 domains per month, whereas mobile web users visit 6.4 individual sites per month, on average.

?M&As start slow, but gather steam in H209: With last year's total deal count down by 20 percent, according to a report last week from DeSilva + Phillips (disclosure: one of our sponsors), JP Morgan anticipates continued coolness in the acquisitions area for at least the first six months of 2009. But things are likely to heat up in the second half of the year, assuming the economy begins to stabilize.

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