Not so long ago, investors and the City were questioning the business models of dot.coms. When a service is free, how can you make money from it? Advertising, of course went some way to explaining this,but it is no panacea’ went the argument. And when the dot.com bubble burst many said that it merely represented a return of realism.

But in truth, it was the cynics who weren’t being realistic. The importance of Internet advertising has been completely underestimated. Many investors and analysts have failed to realise the significance of the convergence between advertising and shopping which is occurring right in front of our eyes.

Increasingly, the boundaries between shopping and advertising are blurring. Google Key Words is popular as it is an incredibly focused way of connecting shoppers with the right merchant.

The three Ps of retail are famous: position, position and position. And retailers will pay premium rent for the right location. But for a net retailer, position on portals and search engines is the key. And that can only be guaranteed by advertising.

For an online retailer then, advertising has replaced High Street Rent in the balance sheet.

That’s why we believe Internet advertising has a lot more growth left in it. Indeed ultimately, Internet advertising, because of the way it converges with shopping, could be greater than the entire advertising industry today.

Take as an example price comparison site PriceGrabber. Visit the site, select the type of product you are after, and the technology does the hard work for you, finding you the best quotes and pointing you to the right web site.

How does PriceGrabber make money? Answer: from advertising – and by taking a commission from each web site it introduces a visitor to, which in our books is actually just another form of advertising.

In the US PriceGrabber is number three in the price comparison market, and it’s growing fast, it has enjoyed an 87% rise visitor numbers over last year, and expects total sales this year to come in at $60mn, yielding a profit of $25mn.

And with a figure like that, UK group GUS, which owns Argus, Homebase, and credit reference company Experian, found its eyes out on storks, and just could not resist.

It’s splashing out $485mn, or £270mn. That represents a forward pe ratio of just under 20, but with the US shopping comparison market expected to grow by around 40% a year for the next five years, no doubt GUS believes it’s cheap at half the price.

The US shopping comparison market would appear to have just completed a round of musical chairs. In August Ebay bought the market leader, Shopping.com for $620m, while more recently, US publisher EW Scripps forked out $525mn for the number two, Shopzilla.com.

PriceGrabber will be linked closely with Experian, maybe swallowed up completely. And Experian its self is expected to be de-merged from GUS early nest year.

© Investment & Business News 2013