IAB: Industry Revenues Topped $2B in Q2

  |  October 3, 2000   |  Comments

The online ad industry's largest association is optimistic about the near future, despite its current woes.

The Internet Advertising Bureau Tuesday released its quarterly report of industry revenues for second quarter, revealing burgeoning growth -- in a sore reminder of the industry's current state.

The Internet Ad Revenue Report, conducted independently by PricewaterhouseCoopers on behalf of the industry's largest association, recorded the industry's eighteenth consecutive quarter of revenue growth, during which it amassed some $2.1 billion.

It also reported that second quarter revenues grew 8.8 percent -- $171 million -- over first quarter, and 127.3 percent -- $1.2 billion -- over the year-ago period. Thus far, the industry has collected about $4.1 billion during the first half of 2000, as compared to $4.9 billion for all of 1999.

While the report highlights the industry's rosy second quarter, statistics for third quarter -- during which online advertising companies visibly began to feel the effects of the April correction -- have not yet been collected.

Nevertheless, the report's authors see the current quarter's financial troubles as decidedly short-term, estimating a run rate between $8 billion and $10 billion.

"While the online advertising industry may be taking a breather from its explosive growth over the past several years, a $2 billion quarter signals the continued health of the Internet," said IAB chairman Rich LeFurgy.

LeFurgy said he anticipates growth ahead, with offline advertisers' initial uncertainty and experimentation giving way to larger-budget online ad spends as they adopt the medium in earnest.

"Far from being broken, the industry is seeing very sizable increases in online advertising from large traditional advertisers," he said.

According to the report, consumer-related products and services led online ad spending, accounting for 30 percent of total revenues. Computing and financial services followed with 17 and 15 percent, respectively, and business services (10 percent) and media (9 percent) rounded out the field.

The report also found that the overwhelming number of revenue transactions -- 95 percent -- continue to be cash-based, with barter/trade and packaged deals accounting for the balance.

Banner advertisements continue to be reported as the predominate type of advertising, accounting for half of all buys for Q2. Sponsorships made up 27 percent; classified ads, 7 percent; referrals 5 percent; interstitials, 3 percent, email, 2 percent; rich media, 2 percent; and keyword searches, 1 percent.

Pricing models for Internet advertising remained fairly constant in the second quarter, with CPM or impression-based deals accounting for 44 percent, and performance-based deals making up 10 percent. Hybrid deals accounting for 46 percent.

"A significant finding of this report is that online advertising continued to increase in the midst of a turbulent phase of the medium's growth, and that advertising became more concentrated in the higher profile sites and portals, signaling that the smart money is going where the traffic is," said Tom Hyland, chair of PWC's New Media Group, which conducted the study.

"The historical fourth quarter bump in ad revenue, combined with the 'use it or lose it' budgets, we look for 2000 to be a very good year for the industry," Hyland added.

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