Internet Ad Spending Soars To $9.6 Billion

by Wendy Davis, Apr 29, 2005, 7:00 AM

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Online advertising revenues for the year climbed to a new record of $9.6 billion--up 33 percent from 2003, and 19 percent from the previous record of $8.1 billion in 2000--according to a report released Thursday by the Interactive Advertising Bureau and PricewaterhouseCoopers. Web ad revenues for the last three months of the year contributed $2.69 to the annual total, representing a 24 percent increase from the $2.18 online ad spend in the fourth quarter of 2003.

Yearly revenues climbed for the major categories of online advertising: search, which grew to $3.9 billion from $2.5 billion in 2003; display and sponsorhip, which climbed to $2.6 billion from $2.3 billion; classifieds, up to $1.7 billion from $1.2 billion; and rich media advertising, weighing in at $963 million, up from $727 million.

"It's all very good news," said Greg Stuart, president of the Interactive Advertising Bureau. "In the past, growth was led by search and classified," he said. "Now that display is going strong, you've got growth on all cylinders."

eMarketer researcher David Hallerman added that online advertising was poised for another banner year in 2005. eMarketer projects 33.7 percent growth this year, he said.

Still, online advertising revenue accounts for just 3.4 percent of total ad spending--more than business magazines and outdoor ads, but less than consumer magazines, television, direct mail, and other traditional media.

The report also disclosed that year-over-year, search advertising grew to 40 percent of the total online ad spend--up from 35 percent the year before--while display ads accounted for 19 percent, down from 21 percent in 2003. The share of classified ads increased to 18 percent from 17 percent, while rich media remained static at 10 percent.

Revenues from advertising purchased on a cost-per-thousand impression basis accounted for 42 percent of the total online ad spend for the year--down from 43 percent in 2003--while pay-for-performance ads accounted for 41 percent of 2004 revenues, up from 37 percent the prior year. Hybrid models represented 17 percent of 2004 revenues, down from 20 percent in 2003.

Consumer ads in the retail, car, entertainment, leisure, and packaged goods categories surged to 49 percent of the online ad spend from 37 percent in 2003. Computing ads fell off to 18 percent of the total--from 20 percent the year before--while financial services ads increased to 17 percent from 12 percent.

Within the consumer category, retail ads represented 40 percent of the total, while car ads accounted for 19 percent; entertainment was responsible for 13 percent; leisure ads came to 16 percent; and packaged goods accounted for 7 percent.

As in prior years, the vast majority of money--71 percent in 2004--went to the top 10 ad sellers, such as Google, Yahoo!, MSN, and America Online, and eBay.

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