Growth in Online Advertising Slacking Off

There's good news and bad news in the latest Internet Advertising Revenue Report, newly released by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers. The good news is that Internet advertising revenues in the U.S. are still growing, topping US$23 billion in 2008. The bad news: That growth appears to be flattening.

Indeed, it did not take this report to alert the industry that growth in this once hot category has been on a downward slope recently.

"The ad buys on our site are in line with the IAB's findings," said Brian Gluckman, manager of media relations for AutoTrader.com.

"The growth in purchases here by both dealers and manufacturers has flattened from years past, though it's certainly not stopped entirely," he told the E-Commerce Times.

"In these times, some advertising makes more sense and other advertising makes less," Edmunds.com CEO Jeremy Anwyl told the E-Commerce Times. He noted that Edmunds.com -- whose audience is a very focused group of car shoppers -- is experiencing growth in ad sales , "but I'd imagine a media outlet that serves a more general audience has a tougher sale to make these days."

Economic Anomaly

To be sure, 2008 was a year of economic anomaly -- the financial system equivalent of the 100-year flood. The fact that Internet advertising topped 2007's total of $21.2 billion -- a record year -- by 10.6 percent is significant.

Still, 10.6 percent is the smallest yearly increase for the industry since 2002. In year-over-year growth, 2007 topped 2006 by 26 percent.

One reason for the slowdown, of course, is that the four main verticals that use Internet advertising have been severely impacted by the recession. The top sectors to advertise online in 2008 -- as in 2007 -- were retail , financial services, computing and automotive, the report found.

Notably, consumer packaged goods increased its share of total Internet ad revenues in 2008 by 60 percent over 2007, the report said.

Online ad growth "is flattening for the same reason as all else -- the economy," Tracy Tuten, associate professor of marketing at Longwood University and author of Advertising 2.0: Social Media Marketing in a Web 2.0 World.

"Ad budgets are tightening overall, and this is causing the flatter growth curve," she told the E-Commerce Times. "Still, things will not become too dire for online advertising because of the efficiency of buys in the online space, and because of the measurement and accountability benefits."

Existential Exercise

There is another story hidden in these numbers that bodes better for the online advertising space. Online ad buys are making up a much greater percentage share of advertisers' budgets, noted AutoTrader.com's Gluckman, with big cuts coming from traditional print mediums.

"Auto dealers and manufacturers are still spending some on TV, but more for brand-awareness campaigns," he said.

"My opinion is that the report gives a high-level snapshot of what is happening -- but to get the true story, you have to dig deeper," Anand Subramanian, CEO of ContextWeb and the operator of the ad exchange Adsdaq, told the E-Commerce Times.

"If you look specifically at growth for targeted advertising versus run of network or run of site, it's a different picture. What we're seeing is that targeted advertising, be it contextual or behavioral or geographical, is actually going up," Subramanian said, "and untargeted buys, like run of network [or] run of site, are coming down. This blended effect is what's reflected in the IAB report."

This is further evidenced by Google's (Nasdaq: GOOG) data, which shows advertisers continuing to spend on search and contextual advertising, he said. Untargeted vendors, like ValueClick or AdNetworks, are seeing a downward trend.

It was inevitable that online advertising growth would slow, Ray Lyle, principal at Driving Revenue, told the E-Commerce Times.

"Don't worry," he remarked. "With the newspapers and magazines dropping by the dozens, expect online advertising to continue to grow for the foreseeable future."