2006 Online Ad Spending Hits Nearly $17 Billion

Online ad revenues continue their upward surge, hitting $16.9 billion in 2006, according to the Interactive Advertising Bureau’s annual revenue report, released today. Search ads and dollars from consumer-aimed advertisers still dominate, while spending on CPM and performance-based advertising has grown.

Revenues in ’06 rose 35 percent over 2005. At $16.9 billion, the total was higher than the $16.8 billion originally estimated by the IAB in March. Back in 1999, online ad revenues clocked in at $4.6 billion, according to the report. The survey for the yearly IAB Internet Advertising Revenue Report is conducted by PricewaterhouseCoopers.

“We’re starting to see marketers and agencies really understand that interactive isn’t just part of the mix,” said Sheryl Draizen, SVP for the IAB. “It’s becoming central to it…It can impact every [point] of the purchase funnel.”

At $6.8 billion in 2006, dollars put towards search ads rose 31 percent from $5.1 billion the year before. Search ad spending comprised 40 percent of 2006 full-year revenues, having slid a bit from 41 percent in ’05.

Display ads came in at $5.4 billion in 2006, accounting for 32 percent of that year’s revenues, compared to its 34 percent allotment in 2005, when display spending reached $4.3 billion. Display advertising includes rich media, sponsorship-related ads, as well as ads served by search king Google’s ad network.

Classifieds and lead generation advertising gained proportionally, according to the study. Classifieds totaled $3.1 billion, inching up from 17 percent of spending in 2005 to 18 percent last year. Lead generation advertising — encompassing monies paid by advertisers to firms that provide customer leads collected online — rose from $753 million or 6 percent of Web ad revenues in 2005 to $1.3 billion or 8 percent in ’06.

E-mail ad spending rose from $251 million in 2005 to $338 million in ’06, about 2 percent of total spending for both years.

Pricing model popularity also shifted a bit. Ads purchased on a performance basis rose 6 percent from 2005 to 47 percent in 2006. CPM ad buys accounted for 48 percent of ad spending, up from 46 percent in ’05. The remaining 5 percent, down from 13 percent in 2005, were priced on hybrid models.

Hitting $8.8 billion, consumer-aimed ad spending, including retail, auto, travel and hospitality, entertainment and packaged goods, accounted for around half of all online ad spending in 2006. Financial services advertisers spent $2.7 billion or 16 percent. Computer hardware and software advertisers made up 10 percent of all ’06 advertisers, spending $1.7 billion. Telecoms spent $1.4 billion in 2006, or 8 percent of total revenues, and media advertisers spent $998 million, or 6 percent.

Although most dollars still flow to the top ten ad sellers, the names of which weren’t disclosed, spending is trickling a little more to other sites. The top ten collected 69 percent of all 2006 revenues, down from 72 percent in 2005.

“Some of the top 25…have gained some momentum,” said Draizen. The report showed the top 25 made up 82 percent of total spending in ’06. Draizen said continued growth of ad networks may be contributing to the boost in ad revenues for smaller sites, but continued, “Marketers are starting to understand that there are real benefits to branded sites.”

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