Call it the coming revolution in classified advertising. It began when Craigslist began offering classified advertisements free online, but that's not where this revolution will end.

The category is now moving to the next stage, one in which free classified ads will serve as content opposite targeted, paid-for display ads, much like any other form of content, such as news or feature stories, according to a new report from Jupiter Research.

In the process, major national sites will emerge to dominate classifieds using this new model, sapping them away from traditional local classified vehicles, such as daily newspapers, predicts the study. 

“New competitors will use networked classifieds to do to classified advertising what the web did to content,” says the report.

And as these new competitors, which will include the likes of Microsoft and Google, wrestle for control of the classified marketplace, it will have an enormous impact on local papers.

“They are going to get remade,” says Barry Parr, lead author of the Jupiter Research report, referring newspaper classifieds. “You won’t see online killing them right away. But you clearly would see revenues decline, and you could see more creativity in the way they are presented.”

In the report, called “Classified Advertising: Seizing Opportunities during a Second Wave of Market Disruption,” researchers forecast that the online classified market will grow some 60 percent over the next five years, for a compound annual growth rate of 10 percent.

While that’s not quite as fast as the 79 percent they are forecasting for search marketing over the five-year period, classifieds are expected to hold their share of the online advertising market, currently 22 percent.

But the forecast for a static market share belies the huge changes as what has long been a local business falls increasingly under the control of a small number of national companies.

These companies will be able to use information learned about someone searching the classifieds, such as where they live, what sort of job they do or where they are interested in buying a house, to help deliver highly targeted paid display ads.

Already Google and Microsoft are in the early stages of pushing in and reforming the market. And Parr expects Craigslist and Yahoo to enter too.

“This is really early on in the market. It’s not as if you have three or four major operators duking it out for control of the majority of classified advertising. But a year or a year and a half from now it could look a lot different,” says Parr.

Already out there is a site called Simply Hired, which was developed by a small company for job classifieds. It follows what Parr sees as the new model. It spiders the web for job ads fitting the user’s search and presents these opposite targeted, paid-for display advertising.

The bones of the new world are also in Microsoft’s Windows Expo Live, currently a beta version offered in Seattle. The product gives away classified advertising but aims to make money by up-selling featured listings to advertisers and selling targeted contextual advertising against the classifieds.

Another expected competitor is Craigslist, which despite shaking up the market initially, has not yet made the jump into using its site to sell display advertising against the classifieds.

The potential for such a system is also present in Google’s Google Base, a product that attempts to build a universal database that can store all information. While currently most of this potential is unrealized, Parr believes Google will develop this application.

As this new market develops it will have a great impact on newspapers, believes Parr, who says those that don’t have a relationship with a national online classifieds partner are at a competitive disadvantage relative to the national players.

The new world will force changes in newspaper print classified sections. While it is as yet unclear exactly what form they will take, Parr anticipates print classifieds may take on more of a display advertising quality, moving toward brand advertising.

“I don’t think that it will all shift online,” says Parr. “But it may become unrecognizable as classifieds.”

Meanwhile, elsewhere on the internet during the week ended April 30, eBay climbed back up to become the fifth top parent company, according to Nielsen//NetRatings. It rejoins Microsoft, Yahoo, Time Warner, Google.
 
Vonage remained the top advertiser, followed by GUS Plc, United Online and Netflix. HSBC climbed five spots to No. 5 for the week, up from No. 10 the week before.
 
The top three advertising sites held from the previous week: Yahoo, MySpace and MSN. eBay and AOL.com switched spots to take fourth and fifth, respectively. 
 
The average computer sessions per person held at 16 for the week, as did the average number of domains visited per person, flat at 39. The average PC time per person rose slightly, by 1.46 percent to 16 hours and 36 minutes.