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Search advertising leads online growth

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Online ad revenue reached $7.3 billion in 2003, up 21% over 2002, according to the Internet Ad Revenue Report released last month by the Interactive Advertising Bureau and PricewaterhouseCoopers.

In the fourth quarter, Internet ad revenue totaled $2.2 billion, up 38% over the fourth quarter of 2002.

Overall growth was led by keyword search, which made up 35% of total online ad revenue in 2003, compared with 15% in 2002.

"Search continues to be huge," said Greg Stuart, CEO of the IAB. "I don’t think there is any sign of it slowing down."

For b-to-b marketers, he added, "You couldn’t have created a better direct marketing tool than search. The ads are absolutely relevant to the customer, the pricing is variable, you can put it up in the morning and take it down in the afternoon and there are no production costs."

Research firm eMarketer projects search marketing will grow to $3.2 billion this year.

"The last few years, paid search spending has been growing at triple-digit rates," said David Hallerman, senior analyst at eMarketer, pointing to 174% growth in paid search in 2003 over 2002 as reported by the IAB. "That kind of growth will not continue, although search will continue to be a healthy area of spending."

Hallerman said that while bidding on keywords drives up prices and overall spending, it reaches a point of limited returns. "Companies might not be willing to bid as high on keyword search terms if they find they are not able to justify the ROI," he said.

Search sites and portals will need to develop more ways to attract local advertisers to tap into a market that still has growth opportunity, Hallerman added.

Another strong category for online advertising last year was classified, which made up 17% of online ad revenue compared with 15% in 2002.

Hallerman said the growth in classified ads is a possible sign of a healthier economy, since the largest share of classified ads is typically in the employment section.

"The fact that they grew is an indicator of the mainstreaming of the Internet," Hallerman said.

Rich media also grew last year, comprising 8% of total online ad revenue, compared with 5% in 2002.

Display advertising was down slightly, making up 21% of total online ad revenue compared with 29% in 2002.

Consumer advertisers led online ad spending, contributing 37% to total revenue. Computer advertising was the second-largest category, representing 20%. Financial services companies accounted for 12% of total online ad spending.

Performance pricing gaining

In 2003, CPM-based pricing continued to be the dominant model, making up 43% of all Internet deals. However, performance-based pricing is gaining ground, comprising 37% of Internet deals last year. Hybrid deals, which combine CPM and performance pricing, accounted for 20% of deals last year.

Stuart said one of the challenges for the IAB is to continue to help marketers get the most value out of the medium.

"It’s still complicated, and we still aren’t quite at an impression standard," Stuart said.

The IAB continues to release guidelines for online ad sizes and formats. Last week, it released voluntary guidelines and best practices for pop-up and pop-under ads.

Stuart said the guidelines are intended to improve online advertising by promoting more responsible use of the ads and enhancing the user experience.

The guidelines address the file format, size and audio/video user initiation for pop-ups and pop-unders. In addition, the IAB is recommending that a user "close" box be mandatory.

The guidelines are posted at www.iab.net and are open for comment.

The IAB will also be releasing a second round of guidelines for rich media this week at its leadership forum.

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