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Online advertising revenue increases in first half

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Signifying a recovery in online ad spending, Internet advertising revenue reached $3.3 billion for the first half of 2003—a 10.5% increase over the first half of 2002—according to a report released last month by the Interactive Advertising Bureau and PricewaterhouseCoopers.

Online ad revenue for the second quarter of the year was $1.7 billion, up 13.9% from the second quarter of 2002.

"We are clearly in an ad recovery," said Greg Stuart, CEO of the IAB.

Online advertising is witnessing a stronger recovery than overall advertising, which reached $61.6 billion in the first half of 2003, up 6.8% from the same period last year, according to TNS Media Intelligence/CMR.

"Search is way up," Stuart said, pointing to one of the factors that contributed to the growth in online advertising.

Keyword search triples

Keyword search made up 31% of total online ad revenue in the first half of the year, more than tripling its share from the first half of 2002 (9%).

"Search is direct marketers’ perfect medium," Stuart said, noting that direct marketers tend to be a leading indicator of growth for a category, just as they were when cable TV got started. "Later, the brand guys make note of that and come in."

Consumer advertisers led online ad spending, contributing 35% to total online sales in the second quarter. Computer marketers contributed 20% to overall Internet spending, followed by financial services (13%), media (12%) and business services (10%).

Microsoft Corp., an early online advertiser, will spend roughly $35 million on online advertising this year, up 6% to 7% over last year, said Mike Delman, general manager of advertising and events at Microsoft Corp. That figure is up approximately 40% from 2001, he said.

"We pulled way back [on Internet spending] in the last 24 months," Delman said. "There were a lot of questions about the validity of medium, and people were waiting for broadband to take hold."

Ad formats and tools advance

Now, Delman said, ad formats and tracking tools have advanced, allowing marketers to evaluate the performance of their online advertising.

"The medium has become much more sophisticated than a static banner," he said.

Display advertising (formerly called banner ads) made up 22% of total online ad revenue in this year’s second quarter, down from 32% in the second quarter of 2002.

Sponsorships represented 11% of online revenue in the second quarter, down from 24% in the second quarter last year.

Online classified ads saw growth in the second quarter, making up 18% of overall Internet revenue, compared with 15% in the same period last year.

Rich-media ads made up 6% of total online ad revenue in the second quarter, up from 3% in the second quarter of last year.

E-mail held steady at 4%, and interstitials were flat at 3%.

Search advertising had a dramatic impact on Internet advertising pricing models, helping performance deals capture 35% of overall Internet revenue in the second quarter, up from 15% for the same period in 2002.

Hybrid deals decline

Hybrid deals, a combination of cost-per-thousand (CPM) and performance deals, declined to 20% in the second quarter, from 39% in the second quarter of 2002.

The CPM pricing model remained relatively flat, comprising 45% of all deal revenues in the second quarter, compared with 46% in the same period last year.

Cash deals were also up in the second quarter, representing 95% of total online revenue, compared with 90% of revenue in the second quarter of 2002. Barter and trade deals made up just 5% of online revenue in the second quarter, compared with 10% in the second quarter of 2002.

The IAB Internet Advertising Revenue Report was conducted by the New Media Group of PricewaterhouseCoopers. It is based on information that is self-reported from companies selling online advertising, including Web publishers, commercial online service providers and e-mail providers.

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