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Report: Google Could be Threatened by Drop in Search Ad Spending

Internet advertising will continue to be red-hot into the future, according to a new report, but some cold water was thrown in Google's direction as the same report stated that search-related advertising will lose market share.

Market research firm IDC forecast that Internet advertising will grow at a compound annual growth rate (CAGR) of 13.5 percent through 2011, from $16.9 billion in 2006 to $31.3 billion. That's three times the growth rate as overall advertising, according to IDC.

And although search advertising will remain in the top spot in terms of overall expenditures, its market share will decline from the current 40 percent to 32 percent in 2011, IDC predicts.

The main beneficiary of that decline in market share will be video advertising, according to IDC. The big loser, as it currently stands, would be Google, which receives nearly all its income from search advertising. That could be one reason Google is extending its reach from strictly search to applications, both Web-based and offline as well.

"Broadband video commercials will experience their breakthrough in the coming years. This will create tremendous opportunities, but also threats, for old and new media companies. At the same time, search advertising will lose market share, which may pose a strategic challenge for Google, the Internet advertising market leader," IDC Analyst Karsten Weide said in a press release.

Google is certainly aware of the challenge, and opportunities, provided by video on the Internet. The Mountain View, Calif.-based company recently bought seminal Web video site YouTube for $1.6 billion, and now includes YouTube video links as part of its search results. In addition, clicking on a "video" link on Google's homepage takes a user directly to YouTube. This gives Google a foothold in the online video world, but whether it can leverage that foothold and use it gain entry into video advertising remains to be seen.

About the Author

Keith Ward is the editor in chief of Virtualization & Cloud Review. Follow him on Twitter @VirtReviewKeith.

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