• by Kate Kaye , December 18, 2002

The online ad industry can take comfort in the old adage: slow and steady wins the race.

The Internet Ad Revenue Report for Q3 2002, released today, shows US online ad sales climbing at a snail’s pace, up a meager 1% to $1.47 billion from $1.46 billion in Q2 of this year. That’s a drop of 18% against Q3 2001. Still, when compared to the 21.9% plummet in Q2 2002 over Q2 2001, the numbers suggest a slow recovery may be on its way.

“There may be a slight glimmer of hope,” comments Greg Stuart, president and CEO of The Interactive Advertising Bureau, with a verbal shrug. “The degree of prosperity during the boom is only being evidenced in the difficulty we’re experiencing now,” he adds.

The report, conducted by The New Media Group of PricewaterhouseCoopers in conjunction with The IAB, indicates a somewhat gloomier picture than what many major online media sellers have been experiencing of late. Consider PwC’s finding that nine of the top fifteen companies selling interactive advertising experienced year-over-year revenue growth averaging 66% for Q3 2002 over Q3 2001.

“Overall, the numbers mask underlying growth and success,” remarks Stuart in reference to IAB member online media outlets that have experienced healthy ad sales in recent months.

eMarketer’s recently released Media Spend Outlook 2003 report (MDN Dec. 18) mirrors his statement. Forecasting growth of 6.3% for online ad spending in the coming year, it cites strong ad sales by Washingtonpost.com, New York Times Digital, Microsoft’s MSN and Yahoo. According to the study, Washingtonpost.com’s ad sales grew 17% in 2002; the New York Times Digital’s ad revenue leaped 33% through November 2002 over the same months of 2001; MSN’s ad sales rose by $40 million by the end of June and increased by 40% by the end of September; and Yahoo’s marketing services revenue was up 22% year over year to $147.4 billion in the third quarter of 2002.

What’s accounting for the promising revenue rates? Stuart believes that the Internet medium is being “significantly undervalued.” In other words, the effectiveness of online advertising outweighs its relatively bargain basement prices, so more and more advertisers are buying into it.

“Supply and consumer usage are on a runaway train right now. It’s a supply and demand issue,” he says, alluding to the market’s “universal truths.”

Like the IAB/PwC’s Q1 revenue estimate, the total industry numbers presented in the Q3 report are extrapolated from data derived directly from the top fifteen online ad sellers “which historically account for over 80 per cent of total industry revenues,” according to the report. Ad dollars recorded by websites, free email providers, commercial online services and other Internet ad sellers are included in the study. These calculations will be adjusted for the fourth quarter 2003 full results report.

Despite the somewhat rosier outlook, the online ad industry is seeing the need to help turn things around more significantly, according to Stuart. “Within the IAB, there’s a new sense of community about getting this stuff taken care of,” he stresses.