Online ad sales expected to keep growing in '05

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There was good news for the online ad industry at Interactive Advertising World last month: Internet ad revenue reached $4.6 billion in the first half of 2004, up 39.7% over the first half of 2003.

The Internet ad revenue report, conducted for the Interactive Advertising Bureau by PricewaterhouseCoopers, was released on Sept. 20, the opening day of Interactive Advertising World in New York during Advertising Week.

For the second quarter of this year, online ad revenue totaled $2.4 billion, up 42.7% over the second quarter of 2003.

IAB President-CEO Greg Stuart said Internet advertising has now exceeded the boom period of the late 1990s, achieving three straight record-setting quarters. "Marketers have figured out that online advertising is often the most cost-effective medium for influencing both branding and sales results," he said.

Online advertising growth was led by search, which accounted for 40% of online advertising in the second quarter, compared with 29% in the year-earlier quarter.

Display ads (formerly called banner ads) made up 20% of total online ad revenue in the second quarter, down from 23%.

The top category for online advertising was consumer goods, which made up a whopping 49% of total online advertising in the second quarter, up from 35%. The second-largest category was computer products, which made up 18% of total online advertising, up from 20%.

Financial services made up 17% (up from 13% in Q2 2003); media made up 10% (down from 12%); and pharmaceuticals and health care made up 5% (flat compared with the year-earlier period).

Projections vary widely

Online advertising is expected to keep growing in 2005, according to other research reports released during Interactive Advertising World.

Research company eMarketer presented aggregated data from several research companies. At the high end of the projections was Deutsche Bank Securities, which forecast online advertising growth of 33% next year. At the low end of the projections was Merrill Lynch, which projected a 10% increase in online ad spending in 2005. eMarketer's projections fall in between at 23%.

Also at Interactive Advertising World, a panel of ad executives and marketers discussed the state of online advertising.

"Budgets are going up," said Sarah Fay, president of Carat Interactive, pointing to clients such as Adidas and Pfizer, which are launching major new campaigns this year.

David Cohen, senior VP-interactive media director at Universal McCann, was more cautious in his assessment of online ad spending, at least for 2004. "In the aggregate, overall budgets are flat," he said, pointing to the agency's clients. "While 2004 could be characterized as a good year, 2005 is shaping up to be `the' year for interactive."

He said despite the IAB report that shows a surge in search advertising, his agency's clients are doing more traditional display advertising. "Advertising is not being driven by search," he said.

Fay added that Carat is seeing much more online advertising for branding objectives. She pointed to an online branding campaign for John Deere tractors.

"They didn't expect to sell any online," Fay said. However, she added, the campaign resulted in the sale of 146 tractors online.

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