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FUDBuster: Online Advertising Comes Back

As companies like Yahoo and AOL report strong financials and new capabilities, they disprove the conventional wisdom that Internet advertising is a low-growth business.

FUDBust: OK, Internet portals did not change life as we know it. But new numbers suggest that online advertising isn't a bad place to make a buck. In January, Yahoo reported fourth-quarter profits of 25 cents a share--more than triple its profits of Q4 2003 and more than double analysts' expectations. Revenues were nearly $3.6 billion, 120 percent higher than 2003. Meanwhile, AOL announced several new features for its online advertisers, including a way to directly link advertising costs to phone calls generated by the ads.

Why the surge? Online advertising often leads to online sales. Consumers spent a record $117 billion online in 2004, a 26 percent increase over 2003, according to a study released last month by ComScore Networks. A new report from ForeSee Results and FGI Research indicates that Web customers are more loyal than physical-store customers, and more likely to buy again.

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