Online Ad Spend Balloons 30%

by Wendy Davis, Apr 21, 2006, 6:00 AM

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Posting a third consecutive year of gains, the Internet accounted for 5 percent of all ad revenue last year, up from 4 percent in 2004, according to a new report released Thursday by the Interactive Advertising Bureau and PricewaterhouseCoopers.

For the year, online ad revenue surged to $12.5 billion, marking a 30 percent gain over $9.6 billion in 2004, and an increase of more than 70 percent from $7.3 billion in 2003. Revenue more than doubled from the $6 billion generated in 2002--the depths of the dot-com bust.

Greg Stuart, CEO of the IAB, attributed the surge to a combination of consumers spending more time online and the availability of precise campaign metrics. "If you're going to spend $10 million, are you going to spend it in a medium where you know what's going on, or where you're just not clear where it's going?" he asked rhetorically.

Additionally, said Stuart, online marketing has proven resilient despite a host of perceived problems, including unpopular pop-up ads and the prevalence of often unwelcome adware. "Internet advertising has pretty much overcome every negative that's been thrown its way," he said.

Paid search last year accounted for the single largest chunk of online revenue: $5.1 billion, or 41 percent of online revenue, compared to 40 percent in 2004. Display ads, combined with display-related ads--rich media, sponsorships, and slotting fees--surged to $4.3 billion for the year, or 34 percent of the total, but this proportion was down from 2004, when such ads accounted for 39 percent of online revenue.

Revenue from Web classifieds came to $2.1 billion for the year, which marked 17 percent of total online ad revenue, compared to 18 percent last year.

As was the case in 2003 and 2004, the second half of the year proved stronger than the first half. Ad revenue in the third and fourth quarter last year accounted for $6.8 billion, or 54 percent of the total. In 2004, the second half of the year contributed 52 percent of the entire year's revenue; in 2003, the last six months of the year accounted for 55 percent of the yearly total.

Most spending--$6.4 billion, or 51 percent--came from consumer advertisers, including retailers, car manufacturers, and travel and hotel suppliers; in 2004, consumer advertisers were responsible for 49 percent of online ad dollars. Financial services marketers accounted for $1.5 billion, or 12 percent, compared to 17 percent in 2004. Computer marketers spent $1.6 billion, representing 13 percent of the total; in 2004 such advertisers were responsible for 18 percent of online ad revenues. Telecom companies increased their ad spending to $800 million, or 7 percent of the total, up from 4 percent in 2004.

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