Online Ad Spending On Fire

Online advertising revenues reached nearly US$4.8 billion in the fourth quarter, making 2006 the third straight year in which ad spending set a new revenue record, according to a report released Wednesday.

The revenue figure for all of 2006 came in at $16.8 billion, 34 percent higher than the previous high-water mark of $12.5 billion set in 2005, according to the Internet Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) report.

The fourth quarter figure represented a 32 percent increase over the same time frame in 2005 and a 15 percent jump from the previous quarter, when just under $4.2 billion was spent on various forms of Internet-based advertising.

“The continued growth … is clearly based on marketers’ recognition that they connect with consumers most effectively through interactive media,” said IAB CEO Randall Rothenberg.

The increase matches many analyst forecasts — double-digit growth is forecast by the two firms to continue for another five years.

Establishing Online Ad Beachheads

In the past, advertisers relied on audiences to view ads in newspapers or on TV, but the Internet caused a sea change in how and where advertising was published. Traditional advertising avenues have become increasingly fractured and harder for these companies to reach. On the other hand, online ad players are improving their techniques for delivering targeted messages online, the report said.

The sales increase “underscores marketers’ understanding that interactive advertising can engage consumers, build brands and sell products and services,” said Rothenberg.

The results “confirm a very healthy environment for online advertising,” said PwC Partner David Silverman. “All signs point to a steady increase” in the amount that one-time traditional advertisers devote to online marketing, he added.

The report suggests that many advertisers are still testing out various ways to use the Internet to reinforce and complement offline campaigns.

The report uses data from the top 15 online advertising sellers and then extrapolates that data to the overall industry. A more detailed report, which will break down the growth by advertising category — such as video and Web search — is expected next month.

Already, though, it’s clear that Google remains the main beneficiary of the rising online ad tide, though other major Internet players such as Yahoo and AOL continue to position themselves to capture more of the Web-centric ad spending. Increasingly, that money is coming out of budgets once reserved for TV, radio and print advertising.

Video Ads on the Rise

Online ad sales had been growing rapidly during the dot-com boom, peaking at $8.2 billion in 2000, according to IAB data, but falling sharply in 2001 and 2002. Ad revenue began to make a comeback in 2003 and the latest surge coincided with Google’s rise to the top of the Web search and advertising sectors.

Though the IAB has tracked the growing importance of video ads in recent years, it is only now beginning to become a significant source of revenue, eMarketer analyst David Hallerman told the E-Commerce Times.

Still, the amount spent on Internet video ads in 2006 represented just over half of 1 percent of all TV advertising budgets, he added, and made up just 2.6 percent of total online ad spending. By 2010, eMarketer predicts that more than one out of every 10 online ad dollars will be spent on video.

Online video is projected to grow 82 percent this year and continue with strong double-digit growth for the next several years. After that stretch of early-stage growth, video ads will be a significant revenue stream for major advertising players, Hallerman added.

One category to watch in 2007 will be social networking. eMarketer predicts more companies will find ways to leverage word-of-mouth and easily targeted demographic niches as branding and advertising tools.