The Time Warner unit's decision last year to replace its ailing subscription model with a free service supported by advertising resulted in a 454% surge in billings from 2005 to 2006, compared to a 142% increase in portals overall.

"Beyond just tearing down the pay-wall, AOL did a good job of focusing on key accounts," explained Jeff Lanctot, vice president and general manager of Avenue A|Razorfish.

It now seems clear that AOL's dive into advertising had an almost immediate effect on the company's performance as a media seller. "We've been surprised at how fast they've transitioned to an ad-supported model," Lanctot added.

In addition, despite major management changes and various other setbacks, the major portals saw a healthy rise in the percentage of overall media billings from 13% in 2005 to 24% in 2006.

Breaking out the vertical category--which made up 37% of total billings in 2006, or just over $200 million out of $542 million spent--provided some noteworthy insights.

Billings in the business and finance vertical, which made up 4% of the vertical category, were up 81% year-over-year. The reference vertical--12% of the vertical category--saw a 79% rise in billing, while news vertical billing--11% of the category--rose 72% year-over-year.

In the communities and social networks vertical--which made up 17% of the category in 2006--MySpace all but dominated, as its share of vertical billings surged 354% compared to the overall vertical's growth of 69%.

Facebook--the only social network to have achieved MySpace-like traction thus far, although on a much smaller scale--increased its billings by nearly 1200% from 2005 to 2006. The still-independent company, however, fell into the category of publishers with less than $750,000 in billings in 2005, and was thus excluded from the report's calculations.

Looking forward, Lanctot said he does not see Yahoo and other portals seriously challenging the likes of MySpace, despite their continued efforts in the social networking arena.

"There was an organic evolution to the growth of MySpace and Facebook that's pretty hard to replicate," he said.

Search spending, as a share of billings, was down last year from 31% in 2005 to 28% in 2006.

To illustrate this trend, Avenue A|Razorfish points to the case of Yahoo, where media purchases shifted significantly from search to display advertising over the last two years.

In 2004, search made up 72% of media purchases at Yahoo; in 2005 search made up 65%; while in 2006 search fell to 40%, with 60% of all media purchases going to display advertising.

The ad network category dropped from 12% in 2005 to 11% in 2006 as a share of billings. Notably, as top networks continue to take a larger percentage of spending, there are signs pointing to a consolidation in ad networks throughout this year, according to the report.

The report also notes a trend toward higher-impact, higher-cost ads, with CPMs up 18.8% over 2005 prices. But, despite social networks' surge, this is one area where they continue to lag, according to Lanctot.

The growth in digital media billings overall dropped from 34% in 2005 to 30% in 2006, according to Avenue A|Razorfish.

This news story is important. I recommend that everyone read it.