Monday, February 8, 2010

by Douglas McMillan

Google CEO Eric Schmidt hinted in July that display advertising would probably be the next of his company's businesses to generate $1 billion in sales. Analysts say 2010 is the year he'll deliver on that prediction.

Display ads are likely to contribute a little more than $1 billion, or about 4% of Google's (GOOG) total sales this year—an increase of as much 40% over last year—say analysts, including Doug Anmuth at Barclays Capital. That marks an important threshold for Mountain View (Calif.)-based Google, which makes most of its sales from ads placed alongside search results and which has been criticized for not getting more revenue from other businesses. Demand for display ads, which include marketing messages in videos and banner ads adorning Web pages, may rise faster this year than for search-related ads, according to eMarketer. "You have to go somewhere else to get the next legs of growth," says Jim Friedland, an analyst at Cowen & Co.

In display advertising, Google lags behind Yahoo! (YHOO), which had revenue of $6.5 billion in 2009 that was generated largely from its display ads. Google has tried to catch up in part through acquisitions. Two of the biggest were aimed at the display ad market: The company paid $1.65 billion for YouTube in 2005 and $3.1 billion for DoubleClick in 2007.

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