IAB/PwC Reports New Heights, Slower Growth in Online Ad Revenues

  |  October 5, 2007   |  Comments

Online ad revenues grew 26.4 percent during the first six months of 2007 to nearly $10 billion, according to the latest joint report from the IAB and PricewaterhouseCoopers.

Online ad revenues grew 26.4 percent during the first six months of 2007 over the same period last year to nearly $10 billion, according to the latest report from the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC). As with recent ad spending reports from Nielsen and TNS Media Intelligence, the findings reflected a slower growth rate than what IAB/PwC reported for the year-ago period, when ad revenues climbed 37 percent over 2005's first half.

While some in the investment community have interpreted the flagging revenue growth now reflected in three ad spending reports a cause for concern, the IAB prefers to see it as a sign of the sector's maturity.

"Marketers have been using the medium for longer," said IAB SVP Sheryl Draizen. "Remember, in 2005 we still had marketers who still weren't using the medium at all."

Additionally, as online advertising reaches ever greater heights in terms of actual dollars spent, growth rates inevitably become harder to sustain. In both 2006 and 2007, marketers sank $2.1 billion more into the medium from January through June than they did the previous year.

Little has changed in the distribution of revenues across search, display and other channels. Search spending during the year's first half accounted for 41 percent of all revenues, compared with 40 percent for the year-ago period. In raw dollar terms, search grew 29 percent to $4.1 billion. Display advertising meanwhile increased from $2.4 billion, or 31 percent of the pie, in the first half of 2006, to $3.2 billion, or 32 percent, for the 2007 period.

Classifieds grew $100 million to $1.7 million, but accounted for only 17 percent of online ad spending in Q1 and Q2 of the year, compared with 20 percent for the same period last year. Lead generation, despite regulatory challenges and a mortgage crisis, grew from 7 percent to 8 percent of all online ad revenue, the report found.

The IAB/PwC found ad revenues were once more heavily concentrated with the top ad sellers. The top ten revenue-earning sites accounted for 70 percent of the total ad spend, down a hair from the 71 percent they commanded in 2006. The top 50 sites collectively accounted for 91 percent of all reported revenues.

Consumer advertisers dominated online spending even more than they have in the past, according to the report. Their campaigns accounted for 54 percent, or $5.4 billion, of all revenues for the measured period, compared with 49 percent, or $3.9 billion, in 2006. Within the consumer spending category, retail led the way with 47 percent of all ad revenues reported by the IAB's members, followed by automotive (21 percent), travel/hospitality (13 percent) and entertainment (9 percent).

Financial services marketers came in second, with 15 percent of first-half revenues; computing advertisers came in third, with 11 percent of spending; and telecoms and media advertisers trailed with 8 percent and 6 percent of the market respectively.

Performance-based and impression-based pricing continues to divide the pie roughly evenly. CPA and CPC pricing models gained slightly, climbing from 47 percent to 50 percent of revenues reported during the year's first half, while both CPM (46 percent) and hybrid pricing models (4 percent) were down slightly.

One item of statistical interest: In Q2, total revenues hit $5.1 billion, the first time they've transcended the $5 billion mark in a single quarter. That reflected a 4 percent sequential growth over first quarter revenues of $4.9 billion, IAB/PwC found.

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Zachary Rodgers

Until March 2012, Zach Rodgers was managing editor of ClickZ's award-winning coverage of news and trends in digital marketing. He reported on the rise of web companies, data markets, ad technologies, and government Internet policy, among other subjects. 

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