Next week marks the beginning of 2008 and my two high school kids will also receive their first semester report cards, the moment of truth for them. It got me to think perhaps it was time to grade my own performance for 2007 on BloggingStocks. So here goes, the A's to the F's...

The A's:

• My recommendation of Aquantive Corp at $24 and stating that Microsoft (NASDAQ: MSFT) needed to buy this company. It did at $66.50. Many readers and members of my investment web site made a near three bagger in less than six months.
• Recommendation of Color Kinetics at $19 back in May to only watch it get bought out at $34 by LG Phillips (NYSE: LPL) of the Netherlands.
• Recommendation of Kyphon at $37 and have Medtronic (NYSE: MDT) buy it at $71
• Recommendation of Opsware at $8 back in March and then again in May at $9 and have Hewlett-Packard Compaq (NYSE: HPQ) buy it out at $14.50
• Recommending Apple ( NASDAQ: AAPL) all year and re-iterating the buy since $80, now at $198 with a new price target at $300 for 2008
• Writing the exhaustive series of the Top 25 Stocks for the NEXT 25 Years back in May/June. Many of the stocks have been bought out and several are up more than 20%.

Continue reading Top Picks 2007: My report card

Top Picks 2007: My report card originally appeared on BloggingStocks on Fri, 28 Dec 2007 11:59:00 EST. Please see our terms for use of feeds.

In my book about Baby Boomer investing I highlight what I feel are the five major growth industries going forward. The industries are health care, alternative energy, technology, communications and lifestyle. I also mention 42 companies within those industries that could be the leaders, the game changers. Since the book has been published, five of the 42 stocks I wrote about are being acquired!

The latest one to go is Checkfree (NASDAQ: CKFR). Fiserve (NASDAQ: FISV) has announced its $4.4 billion bid. Checkfree made our banking-transactional life much easier. The other four that will be part of larger companies are Opsware (NASDAQ: OPSW), Color Kinetics (NASDAQ: CLRK), aQuantive (NASDAQ: AQNT) and Kyphon (NASDAQ: KYPH). Other than aQuantive, the other three were also part of my Top 25 stocks for the NEXT 25 years series.

As the 42 companies are down to 37, it causes some reflection for the future. Great, emerging companies will always be on the radar screen of larger, well-financed suitors. If growth cannot be internally generated through research and development efforts, larger companies will need to acquire growth and next generation products or technology. With interest rates still historically low, the borrowing necessary to buy these young, up-and-comers is not a significant issue. Investors will reward mature companies if they acquire intelligently and strategically.

Continue reading Checkfree, another one of my picks, gets bought out

Checkfree, another one of my picks, gets bought out originally appeared on BloggingStocks on Thu, 02 Aug 2007 15:05:00 EST. Please see our terms for use of feeds.

iCrossing: The next aQuantive? originally appeared on BloggingStocks on Fri, 27 Jul 2007 14:15:00 EST. Please see our terms for use of feeds.

July 19 marks the day that the Dow Jones industrial average closed at the magical 14,000 number. We had a similar magic number just three months ago when the Dow hit 13,000. Back then, the purveyors of doom and gloom said we were going up too far, too fast. They certainly were wrong.

Now that the market is back below 14,000 after falling more than 100 points on July 20, those same bearish talking-heads will no doubt be describing the same scary scenarios. Professional portfolio managers are more concerned with the S&P 500, but the Dow is important and individual investors still follow it more than any other index.

Let's peel back the onion a bit and ask the question all investors are wondering: Can the Dow Jones get past 14,000 and go all the way to 15,000 and by when? My answer is an unequivocal yes. We can reach 15,000 -- by year-end quite possibly. Here are the three main reasons why I'm so bullish (followed by some stocks to consider if you agree with my analysis):

Continue reading Three reasons the Dow will reach 15,000 by year-end -- and six stocks to buy

Three reasons the Dow will reach 15,000 by year-end -- and six stocks to buy originally appeared on BloggingStocks on Fri, 20 Jul 2007 16:27:00 EST. Please see our terms for use of feeds.

Insider trading has been running rampant on Wall Street and now the SEC has sent a Wells Notice to David Li, a board member of Dow Jones for insider trading and leaking information about the Rupert Murdoch's News Corp (NYSE: NWS) bid for the company. David Li is Chief Executive of the Bank of East Asia -the third largest bank in Hong Kong so he is a little harder to get, but that is why they are filing suit.

Insider trading has given me plenty to talk about in recent blogs. Dow Jones (NYSE: DJ), aQuantive (NASDAQ: AQNT), Hilton (NYSE: HLT) and Energizer (NYSE: ENR) are a few of the companies I have spotted funny activity on recently.

Trading with inside information is illegal and everyone knows it. But it can also be very profitable. If you know what you are doing you can get 100%, 300% or 5,000% returns over night. Some of the options traded on Dow Jones had an over 5,000% return. Options bought for 30 cents became worth $15. If you have insider information and know what you are doing it can be like picking the winning lottery numbers. However, it does not take long for people to get suspicious, as it is sort of like winning the lottery multiple times in a row. Many times the illegal activity takes place and then it becomes a game of moving the money around, but sometimes the SEC catches up.

Continue reading SEC after Dow Jones board member David Li for insider trading

SEC after Dow Jones board member David Li for insider trading originally appeared on BloggingStocks on Wed, 18 Jul 2007 18:05:00 EST. Please see our terms for use of feeds.

In the past Mike Fowlkes, Sarah Gilbert and I have pointed out what seems blatant illegal activity in Dow Jones (NYSE: DJ) and Aquantive (NASDAQ: AQNT). Now there is activity in Hilton Hotels (NYSE: HLT) worth taking a look at.

Hilton Hotels closed up 9.34 to $45.39 today on news the company agreed to be acquired by Blackstone Group (NYSE: BX) in a deal valued at $26 billion. A reader pointed out interesting activity on Hilton Hotels.

With the stock up, let's look and see how many "lucky" traders picked up calls on the stocks. A call option gives the buyer the right to buy the stock at a set price. If you think a stock is going to go up you can buy the right to buy that stock at a set price, in the hopes that it does in fact go up, as you expect.

The Hilton July 35 calls (HLTGG) had a volume of 3,660 Tuesday with a high price of $1.90. That is above the average volume of 314 calls per day since the options were issued and just above the previous record high daily volume of 3,616 on 5/31. Those calls are now worth about $10.50 a piece so a 450% gain over two days isn't bad. I have to say this looks suspicious; sort of like a man running from a bank with a bag of money.

Looking at the Hilton August 40 calls (HLTHH) it becomes a little more obvious. Tuesday there were 5,844 contracts for 0.85 cents or less. In the past three weeks -- since the options came out there were only a total of 70 contracts traded. The contracts bought Tuesday are now worth about $5.80 a piece. A 582% gain in two days, representing about $2.8 million in profits.

If that isn't enough money ...there is more. The July 40 calls (HLTGH) saw 3,312 contracts trade Tuesday for less than 0.40. Now at 5.50 it is a 1,275% return for another $1.6 million in profits.

While I do not know who made the trades, their intentions and what they knew when; I am betting they will soon be getting a call from the SEC. In all fairness, just because I see a man wearing a black ski mask running out of the bank carrying a bag of money and a gun doesn't mean he is a bank robber. These trades could be legit, but they trades have all the tell-tale signs of insider trading. By the way has anyone been following Paris recently? Has she been meeting with Martha Stewart?

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Do you have any deadwood in your portfolio? Check out the 18 Warning Signs That Tell You To Dump A Stock.

Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

Is Paris Hilton taking stock trading tips from Martha Stewart? originally appeared on BloggingStocks on Thu, 05 Jul 2007 19:00:00 EST. Please see our terms for use of feeds.

Google's (NASDAQ: GOOG) deal to buy DoubleClick seemed certain to get a government review. Google is too dominant in text advertising and DoubeClick too big in display ad serving and targeting. Of course, competitors like Microsoft (NASDAQ: MSFT) said it would put too much online advertising power in one set of hands.

Now the eyes of the Federal Trade Commission have turned on Microsoft and Yahoo! (NASDAQ: YHOO). Their respective deals to buy aQuantive (NASDAQ: AQNT) and Right Media are going to get the antitrust once over, at the very least.

Right now, the FTC's review of the Google deal is more formal [subscription required] than the other two, but that could change. More than one industry association has asked that the government to take a close look at all three transactions.

Although the odds are that none of the M&A activity that is designed to bring advertising targeting under the umbrellas of big web portals will be stopped, perhaps the FTC work will be more than a formality. When these three transactions are added to AOL's ownership of Advertising.com, the concentration of private data about individual's web habits will be in very few corporate hands.

Perhaps there should be a divide between those that have the information and those who have the advertising inventory. But, that would be in a too perfect world.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Microsoft and Yahoo! get FTC review of online ad purchase originally appeared on BloggingStocks on Fri, 15 Jun 2007 09:00:00 EST. Please see our terms for use of feeds.

This will conclude the whittling process of the 30 Dow Jones Industrials with the last six below. Although the Dow has done very well in the last six months there still appears to be plenty of value here from everything I am able to surmise.

So far I have whittled the Dow down to six stocks: Alcoa Aluminum (NYSE: AA), American International Group (NYSE: AIG), Caterpillar Inc. (NYSE: CAT), The Walt Disney Company (NYSE: DIS), Exxon Mobil (NYSE: XOM) and The Home Depot (NYSE: HD). You can link to the previous posts, Part 1, Part 2, Part 3, Part 4 or Part 5 for your own review and comments.

Pfizer (NYSE: PFE) is a tough one for me to review because there are a lot of mixed signals in the data and the market about Pfizer concerning its pipeline of products. Most notably it has a P/S of 4.14 (TTM) which would place it outside of my consideration by a factor of two under most situations. This is a result of declining sales, but the decline has not hurt earnings in a big way, so the P/E has been coming down as a result. The P/E is about average for the DOW but historically low for Pfizer. If the "pipeline" is truly bare then this trend will continue. However, the stock is supported by a 4.2% yield, almost no long-term debt, and trailing margins that are HUGE at about 40%. Back to the less than appealing issues: PFE has a price-to-cash-flow ratio of almost 15, too high for me. In the long run Pfizer may be a great hold. If you are looking for a solid dividend payer with resistance to much downside risk it would be great for your Roth IRA, but here and now, it might be a short term value trap. In the absence of an acquisition or great new drug where is the upside?

Continue reading Serious Money: Whittling away at the Dow - MSFT, PFE, PG, UTX, VZ, & WMT: Part 6

Serious Money: Whittling away at the Dow - MSFT, PFE, PG, UTX, VZ, & WMT: Part 6 originally appeared on BloggingStocks on Wed, 06 Jun 2007 14:05:00 EST. Please see our terms for use of feeds.

In my continuing series of the top 25 stocks for the NEXT 25 years, the next company is SourceForge (NASDAQ: LNUX). The company just changed its corporate name from VA Software to SourceForge, but has elected to retain its original NASDAQ ticker symbol of LNUX. SourceForge was founded in 1995 as VA Linux Systems and sold primarily Linux-based hardware systems.The company has transformed itself these past few years and recently sold off its unprofitable software business.

LNUX departed the software business to focus on the on-line business. SourceForge is made up of two major divisions: on-line media, which is made up of Open Source Technology Group, a network of technology related web sites that generates revenues by selling advertising on the web sites, and E-Commerce, which sells consumer goods targeted to the massive technology community. The principle web site is ThinkGeek.

The recent quarter saw ThinkGeek improve its sales by 31% as it shipped over 84,000 orders. The products are "rather geeky" toys and accessories that appeal to the tech world of ... aah ... geeks. The traffic to the site is now up to 200 million unique visitors this past quarter. Geeks do buy this stuff!

SourceForge's on-line media campaigns are driving growth as well. With over 30 million unique visitors and 1.6 million registered users, SourceForge is able to offer quite a community for any technology company wanting to advertise. The site is so tech-driven that the quality of visitors and registered users is superb and exactly what the tech companies desire: an educated potential buyer.

SourceForge has cleaned up the unprofitable software business and is now focused on its core competencies. I estimate revenues for 2007 at $51-52 million growing to $60 million and $76 million for 2008/2009 respectively. The earnings per share should be about $0.10 this year followed by $0.20 and $0.32 for 2008/2009. These numbers could prove to be quite conservative.

The operating margins for SourceForge should also ramp up quite well. Currently I estimate operating margins at 6% this year and going to 18-19% by 2009. The leverage in the financial model is just beginning to yield results.

The on-line marketing/advertising sector is growing at 35-40%. Recently, Google (NASDAQ: GOOG) announced its intended acquisition of privately held DoubleClick and Microsoft Corp. (NASDAQ: MSFT) is acquiring aQuantive (NASDAQ: AQNT). As SourceForge continues to build its revenues and unique visitor traffic the franchise becomes only more and more valuable. The technology world is huge and obviously populated by well-trained individuals. The traffic numbers should only continue upwards and on-line advertising revenues more high-margin driven due to the scale in the model.

SourceForge is at the start of a mega-growth cycle in its development and has the opportunity to become a significant, relevant player in the sector.

Georges Yared is the CIO of Yared Investment Research. For more growth stock ideas please visit the web site.

Top 25 stocks for the NEXT 25 years: SourceForge -- LNUX originally appeared on BloggingStocks on Thu, 31 May 2007 13:15:00 EST. Please see our terms for use of feeds.

Jim Cramer proposing on CNBC's Mad Money that Yahoo! (NASDAQ: YHOO) and eBay (NASDAQ: EBAY) should get together and merge. He is calling for this because the growth is slowing for both companies, and a merger could jump start it. Cramer contends that companies with slower growth have to do something to get their sizzle back. Cramer said that Microsoft (NASDAQ: MSFT) was reportedly in talks to buy Yahoo! and that the aQuantive (NASDAQ: AQNT) buyout signals it is willing to do deals. If these companies had better areas to invest in they wouldn't be propping shares up with buybacks. A merger would allow Yahoo!'s massive users to use Skype and PayPal to buy goods. Cramer thinks this would bring back growth, and would finally get Semel out of Yahoo!

This is just after Yahoo!'s chief technology officer bailed out of the company today. As Cramer is long Yahoo! in his charitable trust and as he's been touting ideas for something like this, this "call to merge" is hardly a surprise to me or to others. The market caps are very similar, although eBay is the larger company. You should know that if you are playing these stocks based only on Cramer's comments, then know that you are buying what is probably his third or fourth round of recommendations calling for this. This is the first time he made an entire segment on this would-be merger, but this is best defined as "re-information."

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Jim Cramer begs for Yahoo! & eBay to merge originally appeared on BloggingStocks on Wed, 30 May 2007 19:50:00 EST. Please see our terms for use of feeds.

Microsoft doesn't Yahoo!: Insider says big merger not forthcoming originally appeared on BloggingStocks on Fri, 25 May 2007 18:15:00 EST. Please see our terms for use of feeds.

Yahoo! left to fend for itself as Microsoft shuns it originally appeared on BloggingStocks on Thu, 24 May 2007 14:15:00 EST. Please see our terms for use of feeds.

Microsoft (NASDAQ: MSFT) made it clear, once and for all, that it does not need Yahoo! (NASDAQ: YHOO) to be successful with its internet advertising strategy. Microsoft's Yusuf Mehdi, the head of ad strategy at the world's largest software company said that [subscription] its current internet products plus customers and tech it will get from buying aQuantive (NASDAQ: AQNT) round out the arsenal that it needs to compete for online advertising.

The announcement leaves Yahoo! in a a difficult position. With Google's (NASDAQ: GOOG) purchase of DoubleClick, Yahoo! does not have a large presence in the internet ad serving business. Its share of the search market is still dropping according to Hitwise, and there is still little evidence that the company's Panama advertising search product is bringing in a large slug of new revenue. Yahoo!'s top line only grew about 10% in the last quarter.

Yahoo!'s shares jumped from $28 to over $33 when the press published reports that Microsoft was interested in buying the web portal. But, the stock has sold off to $28.60 since then. Investors are likely to do very little with the shares until Yahoo!'s next quarterly earnings report. If it is weak, and Panama has not produced a quarter of solid results, it will be a long year for Yahoo! shareholders.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Microsoft walks away from Yahoo! originally appeared on BloggingStocks on Thu, 24 May 2007 08:20:00 EST. Please see our terms for use of feeds.

I have been involved in the investment industry for almost 29 years. The first 13 I spent with Dean Witter Reynolds (now Morgan Stanley (NYSE: MS)) and the last 16 years as a senior partner with two investment banking-research boutique firms. I have worked with over 150 stock research analysts just on the sell-side and another 200 plus on the buy side. Categorically, the title research analyst does not make an analyst a rocket scientist. There are a few myths that need to be explored and more importantly, explained.

There are two and only two types of analysts in the stock research world. 1) those that "get it" and are ahead of their particular industry and can pretty accurately predict what is "going to happen" within the sector they follow, and 2) analysts that are strictly reporters of the news affecting their sectors and do not think outside the box.

Case in point: Stewart Barry of ThinkEquity Partners (my alma mater) has been absolutely brilliant in the internet services sector. Forward thinking, cutting edge research and the ability to separate the news from the noise. Stewart nailed the strong possibilities of Aquantive (NASDAQ: AQNT) and 24/7 Real Media (NASDAQ: TFSM) being acquired. Both are getting acquired. What Stewart nailed wasn't the rumor mill about these two -- he was dead-right on the fundamental issues affecting Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG) and how AQNT, TFSM, and DoubleClick could fill those needs. Stewart Barry is an all-star analyst because he is ahead of the curve and ahead of his peer group. Stewart has reiterated his buy rating on ValueClick (NASDAQ: VCLK) not because it may be acquired, but because the basic fundamentals are superior and the company's growth rate is accelerating.

Continue reading Research Analysts: Some great and some lousy

Research Analysts: Some great and some lousy originally appeared on BloggingStocks on Tue, 22 May 2007 18:35:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY:

• Deutsche Bank and ABN Amro cut GlaxoSmithKline (NYSE: GSK) to Hold from Buy following the New England Journal of Medicine warnings from Avandia.

• Merrill Lynch cut SanDisk (NASDAQ: SNDK) to Neutral from Buy due to concerns that oversupply in the industry will extend through next quarter.

• Cowen downgraded shares of Lockheed Martin (NYSE: LMT) to Neutral from Outperform based on slower 2007-2008 EPS growth and less cash redeployment upside than General Dynamics Corp (GD) and Raytheon Co (RTN).

• UBS downgraded aQuantive (NASDAQ: AQNT) to Neutral from Buy and RBC Capital cut shares to Sector Perform from Outperform after the Microsoft (MSFT) acquisition...

• Piper Jaffray downgraded Cytyc Corp (NASDAQ: CYTC) To Market Perform from Outperform.

• NetBank, Inc (NASDAQ: NTBK) was downgraded to Underperform from Market Perform at Friedman Billings.

• Merrill Lynch downgraded shares of Aeropostale, Inc (NYSE: ARO) to Neutral from Buy.

• AG Edwards downgraded BHP Billiton Ltd (NYSE: BHP) to Hold from Buy.

• Gabelli downgraded shares of Alltel Corp (NYSE: AT) to Hold from Buy.

Analyst downgrades 5-22-07: AQNT, GSK, LMT, MSFT and SNDK originally appeared on BloggingStocks on Tue, 22 May 2007 10:51:00 EST. Please see our terms for use of feeds.

ValueClick gets even more value originally appeared on BloggingStocks on Mon, 21 May 2007 14:57:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY:

• Baird cut ValueClick Inc (NASDAQ: VCLK) to Neutral from Outperform, citing the FTC inquiry.

• aQuantive (NASDAQ: AQNT) was downgraded to Sell from Buy after the company was acquired by Microsoft (MSFT) and because aQuantive no longer trades on fundamentals. Kaufman and Gabelli also cut aQuantive to Hold from Buy.

• Cigna (NYSE: CI) was downgraded at Prudential to Neutral from Overweight on valuation.

• Warner Music Group's (NYSE: WMG) downgrade to Sell from Neutral at Pali Research was based on the lower industry outlook, which Pali believes revenues are likely to fall at least 10% for the industry in 2007, along with the company's release schedule.

• Bear Stearns downgraded Clear Channel Communications (NYSE: CCU) to Peer Perform from Outperform on the acceptance of the higher bid.

• Medtronic Inc (NYSE: MDT) was downgraded to Underweight from Equal Weight at Morgan Stanley...

• Georgia Gulf Corp (NYSE: GGC) was downgraded to Sell from Hold at Matrix USA.

• Stifel cut Core Laboratories (NYSE: CLB) to Hold from Buy.

• UBS downgraded Intuit Inc (NASDAQ: INTU) to Neutral from Buy.

• Occidental Petroleum Corp (NYSE: OXY) was removed from Goldman's Conviction Buy list.

• Friedman Billings downgraded downgraded CapitalSource, Inc (NYSE: CSE) and Countrywide Financial Corp (NYSE: CFC) to Market Perform from Outperform.

Analyst downgrades 5-21-07: AQNT, CCU, CI, CFC and WMG originally appeared on BloggingStocks on Mon, 21 May 2007 11:04:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY:

• DA Davidson upgraded Microsoft Corp (NASDAQ: MSFT) to Buy from Neutral, as the firm is no longer concerned the tech giant will acquire Yahoo! (YHOO) following the recent acquisition of aQuantive, Inc (AQNT).

• HSBC upgraded shares of Sony Corp (NYSE: SNE) to Overweight from Neutral to reflect improving profitability at Sony's electronics business.

• Pacific Crest upgraded Adobe Systems (NASDAQ: ADBE) to Outperform from Sector Perform to reflect the strong CS3 outlook and growth in new areas such as mobile.

• Citigroup upgraded their cable sector view as they continue believe cap ex will remain at elevated levels at a time when the marginal cable investor is likely more willing to forego near-term FCF growth to achieve robust EBITDA growth. Along with the raised sector view, Citigroup upgraded Time Warner Cable (NYSE: TWC) and Comcast Corp (NASDAQ: CMCSA) to Buy from Hold. The firm believes investors can benefit from owning both EchoStar Communications (DISH) and cable equities...

• Bear Stearns upgraded Tiffany & Co (NYSE: TIF) to Outperform from Peer Perform.

• RBC Capital raised American Eagle Outfitters (NYSE: AEO) to Outperform from Sector Perform.

• Sepracor Inc (NASDAQ: SEPR) was raised to Neutral from Underperform at Cowen.

• ING upgraded BP plc (NYSE: BP) to Buy from Hold.

• Valero Energy Corp (NYSE: VLO) was added to Goldman's Conviction Buy list.

Analyst upgrades 5-21-07: ADBE, CMCSA, MSFT, SNE and TIF originally appeared on BloggingStocks on Mon, 21 May 2007 10:48:00 EST. Please see our terms for use of feeds.

If anyone wonders why Microsoft (NASDAQ: MSFT) paid $6 billion for aQuantive (NASDAQ: AQNT), they need look no further than the report from Leichtman Research Group for first quarter 2007. In these three months alone, 3 million people joined the broadband revolution. Read that as 3 million more potential YouTube visitors, Second Life devotees, advertisees. This represents almost 6% growth in this quarter alone, bringing the total of U.S. broadband subscribers to 56.2 million.

Of that audience, 55% buy through their cable company, while the telephone industry pulls in 43%. For this quarter, though, the telephone side accounted for 51% of the growth. In fact, the telephone companies have led cable in acquisitions in each of the last 10 quarters.

Leading the pack overall is AT&T (NYSE: T) with 12.8 million subscribers, followed closely by Comcast (NASDAQ: CMCSA) at 12 million. Verizon (NYSE: VZ) and Time Warner Cable (NYSE: TWC) both have more than 7 million subscribers. Others with over a million are Cox, Charter, Cablevision, Qwest (NYSE: Q) and Embarq. Top performer for the quarter? AT&T, with almost 700,000 new subscribers.

Why Microsoft bought aQuantive: Broadband users up 3 million this year originally appeared on BloggingStocks on Sat, 19 May 2007 19:47:00 EST. Please see our terms for use of feeds.

Recent mergers between traditional and online advertising firms suggest a deep flaw in the advertising business -- a flaw exposed by Google Inc. (NASDAQ: GOOG)'s evidently unstoppable technology edge. How so? While traditional advertisers deliver open-loop systems, Google delivers a closed-loop solution.

The reason that online advertising is growing is because it offers a closed-loop solution -- a notion that I first described in Net Profit. By contrast, TV and newspaper advertising is an open-loop system -- one in which a company pays to reach a viewer without getting any specific feedback on whether the advertising money leads to increased sales.

By contrast, a closed-loop solution measures the specific response to the advertising dollar -- tracking whether a user clicks on an ad and whether that clicking leads to an online purchase. I call it a solution because it lets the advertiser measure the extent to which advertising expense leads to increased sales. The closed-loop solution's ability to measure return on advertising is an enormous breakthrough for advertisers.

As everybody knows, Google's algorithm for linking tiny text advertising to Internet search has boosted the online advertising business. According to the Wall Street Journal [subscription required], those search-related ads now account for 40% of the $20 billion U.S. internet ad market. And internet-ad sales overall have nearly tripled in the past five years -- to 7% of the $286 billion overall U.S. ad market -- up from 3% in 2002.

Moreover, Google's success is coming out of the hide of TV and newspaper advertisers. For example, in 2006 General Motors Corp. (NYSE: GM) cut its TV ad spending 15% to $1.38 billion and reduced its newspaper advertising 60% to $232.1 million. Meanwhile, GM's online spending rose 16% to $130 million.

Continue reading Online ads' closed-loop solution

Online ads' closed-loop solution originally appeared on BloggingStocks on Sat, 19 May 2007 15:40:00 EST. Please see our terms for use of feeds.