Study: Q3 US Internet advertising tops $4 billion

Internet advertising spending continued to grow in the third quarter, reaching an estimated $4.2 billion.

Internet advertising jumped 33 percent in the third quarter in the U.S., compared with the same quarter in 2005, as companies continue to increase their spending in online marketing.

Companies spent an estimated US$4.2 billion in online ads, as this market grew for the eighth quarter in a row and recorded its highest quarterly revenue ever, the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers LLP (PwC) said Tuesday.

The growth in Internet advertising has played a key role in the recovery of the Internet economy. Google Inc., for example, generates most of its revenue from online ads, as do Yahoo Inc. and Microsoft Corp.'s MSN Internet unit.

Following in Google's footsteps, many companies from the Web 2.0 generation of Internet startups have adopted business models based on Internet advertising. Consequently, their ability to innovate, develop new services and survive is intricately tied to the online ad market.

For example, there are new companies offering hosted applications for consumers for free, confident that they will be able to generate enough revenue from delivering online advertising to their users. This fledgling software-as-service model is seen as a potentially significant threat to companies like Microsoft Corp., which sell packaged software.

Although IAB and PwC didn't break out the third-quarter revenues, the largest online ad category for the past several quarters has been the search format. These are the text-based, pay-per-click ads upon which Google has built its empire.

Close behind and expected to grow very quickly in the near future is the display format, which includes multimedia, banner and sponsorship ads, including video ads. Classified listings also account for a significant share of online ads.

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