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Net Ad Revenues Remain Robust

By Nora Macaluso
Oct 4, 2000 12:00 AM PT

The Internet advertising industry saw $2.1 billion (US$) in revenue in the second quarter, with year-to-date sales approaching the total for all of last year, according to a study released Tuesday by the Internet Advertising Bureau and PricewaterhouseCoopers.

Net Ad Revenues Remain Robust

"While the online advertising industry may be taking a breather from its explosive growth over the past several years, a $2 billion quarter signals the continued health of the Internet as it evolves into history's most robust medium for advertisers and marketers," said Rich LeFurgy, chairman of the ad bureau and general partner at WaldenVC.

On Track for Big Gain

In the first six months of 2000, Internet ad spending totaled $4.1 billion, putting the industry on track to see revenue of $8 billion to $10 billion for the year, according to the study. Second-quarter revenue was up 8.8 percent, or $171 million, over the first quarter, and up 127.3 percent, or $1.2 billion, from the year-earlier quarter.

In 1999, companies spent $4.6 billion on online advertising.

"Far from being broken, the industry is seeing very sizable increases in online advertising from large traditional advertisers," LeFurgy said.

Traditional Advertisers Move to Net

What is changing, LeFurgy said, is that "the 'throw-it-up-against-the-wall-to-see-what-sticks' test-type efforts are gone, as the ad community now knows that the Internet is a market share driver, and the marketplace now understands that this is a brand building and direct marketing medium."

Though dot-com companies are cutting back on advertising spending, some observers suggest online advertising is benefiting as companies move to the Internet instead of relying on more expensive television commercials.

According to a recent study from Shop.org and the Boston Consulting Group, companies spent about 59 percent of their marketing budgets on online advertising in the second quarter, up from 49 percent in the first.

Consumer Ads Dominate

Companies spent the most money -- 30 percent of the total -- on consumer-related advertising, followed by computing, with 17 percent, financial services, with 15 percent, business services at 10 percent and media at 9 percent.

Ninety-five percent of revenue transactions were cash-based, with bartered or packaged deals accounting for just 5 percent of total revenue.

Banner ads remained the most popular type of advertising in the second quarter, accounting for half of all online ads. Sponsorship ads amounted to 27 percent of the total.

'Bumps in the Road'

"In the long term, the robust nature of the Internet will continue to lead the world economy, but there will be some bumps in the road, as we have seen in virtually every advertising medium as it grows in importance," said Tom Hyland, head of the PricewaterhouseCoopers New Media Group.

"A significant finding of this report is that online advertising continued to increase in the midst of a turbulent phase of the medium's growth, and that advertising became more concentrated in the higher-profile sites and portals, signaling that the smart money is going where the traffic is," said Hyland.

Looking for Strong Q4

The report, sponsored by the ad bureau and compiled by PricewaterhouseCoopers, does not predict future growth. However, because of "the historical fourth quarter bump in ad revenue, combined with the 'use-it-or-lose-it' budgets, we look for 2000 to be a very good year for the industry," said Hyland.

The industry's "Advertising Revenue Report" has been released quarterly since 1996. It is based on information reported by more than 200 companies and represents thousands of sites, the IAB said.

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