Online ad revenue up 10.5 percent through mid-2003

FRAMINGHAM (11/12/2003) - Online advertising revenue in the U.S. is up 10.5 percent for the first six months of 2003, totaling US$3.29 billion, compared with the $2.97 billion booked in the first six months of 2002, according to a study released yesterday by the Interactive Advertising Bureau (IAB) and auditing firm PricewaterhouseCoopers LLP.

The figures, according to the New York-based IAB, show that online ad revenue for the second quarter of 2003 totaled $1.66 billion, a 13.9 percent increase over same period last year. Actual first-quarter online ad revenue was lowered slightly to $1.63 billion, down from an earlier estimate of $1.69 billion. Second-quarter revenue increased by 1.7 percent over the first quarter figure.

Greg Stuart, IAB president and CEO, said in a statement that for the third quarter in a row, "revenue figures mirror the reality of the marketplace," which has been growing.

"Our prognosis for a continued and steady recovery is being realized, and the outlook remains bright," he said. "With Internet usage and broadband adoption continuing to escalate, marketers are throwing their weight and dollars behind interactive advertising."

Pete Petrusky, director of new media at New York-based PricewaterhouseCoopers, said the latest figures show that the industry is "still working its way through to find the best (ad) formats that are going to bring in the most eyeballs." The first online ads in the late 1990s were banner ads, which transformed into pop-up ads and are now being replaced by keyword searches, where online search engines generate results for users based on fees paid by advertisers for better listing positions, he said. Ads in the future will likely have new formats.

One key to increased online advertising will be a higher adoption rate for broadband Internet access, Petrusky said. With an estimated 18 million to 22 million homes using broadband today, industry estimates show that a surge in new advertising will likely occur as broadband use hits the 30 million homes mark, he said. "I do think that this industry is poised for another significant growth phase when they hit that critical mass point" in the next year or two, Petrusky said.

The latest ad revenue figures "strongly suggest the industry has rebounded, reflecting improving fundamentals, (including) fewer noncash deals and continued investment from the largest buyer segment, consumer advertisers, (that) bode well for the industry as a whole," he said.

Carol Baroudi, an analyst at Baroudi and Associates in Arlington, Mass., said the ad revenue figures are a mixed bag. "The good news is that somebody's spending money" in what has been a tough economic period, while the bad news is that online ads are often "horrific for the user" because of spam and unwanted pop-up ads, Baroudi said.

"It's making a great market for the anti-advertising software" companies, which offer software to stop pop-ups and spam, she said.

The largest amount of online ad revenue in the first half of the year came from keyword searches, where advertisers pay search engine companies such as Google Inc. and Yahoo Inc. to list their Web sites higher in results presented to users as they do online searches. Online search ad revenue comprised 31 percent of total ad revenues for the second quarter of 2003, more than triple the 9 percent it brought in a year earlier, according to the study.

Banner ad revenue is down to 22 percent of total revenue, from 32 percent one year earlier, while multimedia ad revenue is up to 6 percent from 3 percent one year ago. One reason for the lower banner ad revenue, according to an IAB spokeswoman, is that many long-term banner ad contracts signed in the late 1990s at the height of the banner ad explosion have been expiring.

Most online advertising was from consumer products advertisers, who provided 44 percent of the total ad revenue for the first half of the year, according to the study.

The IAB/PricewaterhouseCoopers report has been released quarterly since 1996.

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