Online Ad Growth Slowed To 11% In 2008

Online advertising growth was cut by more than half last year to 10.6% as the recession put the brakes on Internet ad spending after years of eye-popping gains.

According to the latest figures released Monday by the Interactive Advertising Bureau and PricewaterhouseCoopers, online advertising last year reached $23.4 billion, with the fourth-quarter total of $6.1 billion virtually unchanged from each of the four previous quarters.

The 2.6% increase in fourth-quarter ad revenue compared to a year ago was the smallest since 2002 as the usual holiday season surge in ad spending failed to materialize. The 51% of total online ad dollars spent during the second half of 2008 was also the lowest percentage for the last six months of any year since 2002.

"The economy has had a significant impact on the short-term growth of the Internet ad market," acknowledged David Silverman, a partner in the entertainment, media and communications practice at PricewaterhouseCoopers, during a webinar Monday on the IAB report. He added that the double-digit increase against economic "headwinds" underscored the sector's underlying strength.

Still, it's a far cry from the 25% or better gains of the last several years as the advent of Web 2.0 helped power an Internet ad revival.

And with online ad growth all but stalled in 2008 and the near-term outlook on the economy not improving, some experts have gone from predicting flat-to-slow growth in 2009 to a decline. At least week's OMMA Global Hollywood conference, economist Dr. Paul Kedrosky projected online ad dollars would fall 8%-9% in 2009, with traditional ad spending falling even farther amid a slumping GDP.

Earlier this year, Jeff Lanctot, chief strategy officer at Razorfish, said a flat 2009 for online ad spending would be a "best case scenario." Most analysts still predict single-digit growth in online advertising. But with the IAB releasing its new figures, eMarketer revised downward its 2009 online ad estimate for the third time to $24.5 billion, or 4.5% growth. It previously projecteGd 8.9% growth to $25.7 billion. Other research firms and analysts may soon follow suit.

Advertising pie chart-2008 fourth quarter results

Not surprisingly, search increased its share of online advertising to 45% from 41% of online advertising in 2008 as marketers increasingly turned to the category as a more reliable and efficient way to allocate interactive ad budgets. Likewise, performance-based advertising overall jumped to 57% from 51% of online ad dollars, highlighting the shift toward more accountable ad formats in tough economic times.

Display advertising, which has suffered more than search as a result of the downturn, nevertheless remained about one-third of online ad spending. One bright spot was digital video advertising, which nearly tripled in 2008 to $734 million. At 3%, however, it still accounts for only a tiny sliver of online advertising.

With the newspaper business in turmoil, classified advertising continued to shrink to 14% from 16% of the total, dropping from $3.3 billion to $3.2 billion last year. Among industry sectors, retail -- the largest category -- had the biggest decline, slipping to 22% from 25% of spending, or $5.4 billion to $5 billion.

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