Report: Net Ads Strong Despite Slip

Although Internet advertising revenue during the third quarter experienced a 63 percent rise compared to the same period in 1999, earnings slid 6.5 percent below second quarter 2000 totals, according to a study released Wednesday by the Internet Advertising Bureau (IAB) and PricewaterhouseCoopers.

The US$138 million decline was the first time such earnings had decreased from a previous quarter since the firms began tracking online advertising four years ago, a fact that the study said should not come as a surprise.

"Because of the robust nature of this medium, we have become accustomed to continued, unfettered growth," said PricewaterhouseCoopers new media group chair Tom Hyland.

Hyland added that the third quarter's Internet ad revenues -- which increased almost $2 billion over Q3 1999 ad revenues -- were noteworthy considering the comparatively weaker state of the current advertising market.

The report said that for the first nine months of 2000, profits from Web-based ads totaled $6.1 billion, placing the industry on track to see revenue of $8 billion to $9 billion for the year. By comparison, the total revenue for online ads in 1999 was $4.6 billion.

"This is still the fastest growing medium ever, subject to the vagaries of the marketplace, but still recognized by advertisers, both small and large, as the place they have to be to ensure success," Hyland said.

Factors for Slowdown

The study cited a number of possible reasons for the third quarter slowdown, including a pullback of ad capital by many firms in the dot-com sector, traditionally weak third quarter results, and a shifting focus by advertisers on how to best take advantage of the Internet.

Despite these factors, researchers said traditional advertisers -- drawn by "innovative" promotional methods that are unique to the Internet -- continue to boost their online spending.

"Increasingly aware of the power of the medium for branding and direct marketing, these savvy advertisers are no longer looking for the most traffic," IAB chairman Rich LeFurgy said. "Rather, they are seeking different ways and new creative formats which publishers are offering to build better brands."

Added LeFurgy: "This is an industry of innovation, and the serious players are in for the long haul."

Consumer Ads Lead

Companies spent the most money -- 30 percent of the total -- on consumer-related advertising, followed by computing at 18 percent, financial services at 14 percent, media at 11 percent and business services at 10 percent.

Banner ads remained the predominant online ad format in the third quarter, accounting for 46 percent of all Internet ads, followed by sponsorship ads at 28 percent.

In addition, 92 percent of revenue transactions were cash-based, while bartered or packaged deals accounted for the remainder.

The "Advertising Revenue Report" is based on information reported by more than 200 companies and represents thousands of sites, the ad bureau said.