Limewire CEO George Searle opened his keynote at the P2P Advertising Upfront LA event earlier this week with an unexpected observation. Searle told the audience that there is no growth in the online music market. Market researchers actually would expect music downloads to go down by seven percent over the next five years. Paid search on the other hand would grow by 132 percent.

This observation was especially surprising because Limewire has spend the last couple of years working on an online music store that will finally be unveiled in in time fore the holiday season later this year. But it looks like selling music downloads is only the first step for Limewire. The company has its eyes set on the growing online ad market, and it's willing to learn a lesson or two from Google in this space.

Searle told the audience that Limewire gets about seven million new downloads per month, and its users generate a total of five billion searches per month, which supposedly puts it in the same league as Google itself. If Limewire was a web search engine, it would be on third place behind Google and Yahoo in terms of unique visitors, but ahead of Microsoft's Live.com, according to Searle.

The obvious difference between those search engines and Limewire is that Limewire doesn't monetize its search traffic at all. Well, that and all those MP3z, I guesss. The company wants to change that with contextcual advertising that is similiar to Google's Adwords - text based ads that are clearly seperated from, but related to the actual search results. Searle showed a slide with what I suppose was a mockup of the client, and the ad placement pretty much looked like it does on Google right now: Two text ads on top of the search results, three or four on the side.

These text ads will initally be used to power the Limewire music store, pointing users to licensed tracks related to their search requests, but the company eventually wants to make this available for third-party advertisers as well, allthough Searle declined to state when that might be.

I talked briefly to Searle after his keynote and asked him why they'd enter the music business at all if music sales aren't promising any growth. He explained that his company believes music sales won't go away either, but I guess the lawsuit of the music industry against Limewire might play a role as well. I'd also expect that the Limewire music store could be a great test case to fine-tune the actual advertising product. In any case, it will definitely be intreresting to see what they're going to come up with.

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