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Podbridge, a Mountain View based podcast advertisement company has raised $8.5 million in Second Round of Funding from Sutter Hill Ventures. Earlier Investors Mayfield and Worldview Technology Partners also participated in the round.

Podbridge has built an end to end system that automatically allow advertisers to serve targeted ads. The way they do it is by attaching an iTunes plugin with the podcast that is downloaded by the user. The plugin resides on the PC and communicates with the mobile playback device providing accurate stats on reach, frequency, playing time, and download counts. These metrics could then be used by advertisers to manage their campaigns.

Alarm Clock thinks that podcasting was overhyped and actually went nowhere, so this round is really insane

And while blog advertising accounted for $16.6M, or 81.4% of total spending on user-generated online media in 2005, PQ expects podcast advertising to be a larger market by 2010. It expects podcast advertising to grow at a compound annual rate of 154.4% to $327M in 2010, while blog ad spending will rise 78.4% to $300.4M in the same time frame. It doesn’t seem logical to us that podcast advertising will be bigger than blog advertising.

There are however some more pieces to this puzzle. Apple has just announced a major milestone-100 million iPods and 2.5 billion songs sold through iTunes. EMI on the other hand announced to sell their labels without DRM on iTunes, they are most likely forced onto this decision because of falling CD sales and shrinking revenues. In such a situation where sky seems to be falling apart, it wont be a big stretch if a label company decides to sell songs for free, supported by 3-15 seconds of ads appended before the songs. Media companies might initially think this to be ridiculous, but such a move will skyrocket sales and has the potential to re-initiate the falling empire. Some might under estimate the power of free, but Google is built entirely upon free services and software that in turn is supported by ads. Jingle Networks captured 7% of the $7 billion U.S. 411 market by offering free 411 calls supported by ads. The 411 market was previously dominated by telcos offering the same service for $3-$5 per phone call. If such a scenario ever materialized, podbridge would be the adsense for this market segment.

Podbridge competitors include Blast Podcast, Kiptronic, Radiotail, and Podtrac.