IAB Financials: A Peek Behind the Curtain

With the departure announcement last week of the Interactive Advertising Bureau’s general manager and SVP, Sheryl Draizen, and a CEO changeover in January, the trade group is undergoing a new stage in its evolution. The organization is over ten years old now, having overseen industry milestones like the dot-com bust and the first year total online ad industry revenues hit $1 billion in 1998.

In the name of transparency, the IAB in April pressured online audience measurement firms Nielsen//NetRatings and comScore to complete audits of their methodologies. Considering its current state of growth and influence, a review of the IAB’s own operations, also in the name of transparency, seems appropriate.

Along with the industry it represents, the IAB has steadily boosted membership and revenues in recent years. According to the nonprofit’s Internal Revenue Service filings, it generated $3.1 million in total revenue in 2003, $4.5 million in 2004 and $5.2 million in 2005. Currently, the group boasts 346 members, a far cry from the 30-some members that belonged in 2001. Total revenues for 2006 are not yet available.

In 2002, the IAB was roused from its small trade association slumber by Greg Stuart, who was brought on board then as president and CEO. The entrepreneurial-minded Stuart decided the group needed to be run like a business if it was to fulfill its mission to foster online ad industry growth.

“The finances of the IAB were in a shambles,” said previous IAB Treasurer and 24/7 Real Media CEO Dave Moore. “Greg came in with the understanding that this was really a startup.” Today Moore serves as IAB secretary.

When he first came on board, Stuart was earning $270,000 annually in addition to a $75,000 bonus, contingent on the organization reaching specific goals. By the time he left last year, he was earning $450,000 salary, the same amount earned by current IAB CEO Randall Rothenberg. The IAB paid over $1 million in other salaries and wages each year between 2003 and 2005. The group doesn’t disclose individual salaries other than that of its CEO; board officers and directors are not paid.

“It wasn’t until Greg Stuart got there and began accelerating the member fees that we had enough money to do things,” said former board member and industry vet Susan Bratton, who said the IAB often relied on its members’ donated services to get by before more dollars began flowing in. “We all pitched in a lot using our own corporate resources,” she added, noting a designer from Excite@Home, where she served as SVP Sales and Marketing while at the IAB, created the group’s logo.

Revenue generating initiatives have diversified over the years, beyond member dues and events. According to the organization, about 55 percent of revenues are derived from dues today, compared to 100 percent five years ago. One money maker is the IAB’s subscription-based Media Credit System, which compiles publisher member data to help assess credit risks associated with selling to agencies and advertisers. The Web site’s job board has also been surprisingly lucrative since launching a year ago, according to Draizen, who told ClickZ News it’s been on track to generate at least $100,000 annually.

Advertising on the site and in newsletters also brings in cash. “We’d be heretics if we didn’t sell ads on the Web site,” said Stuart while still heading up the group. The IAB collected $22,404 in ad revenues in 2005, $42,663 in 2004 and $5,513 in 2003, according to IRS filings.

A cash infusion from a handful of its large publisher members in 2003 gave the group a much-needed budgetary tune-up. The so-called Acceleration Program brought in $5.8 million in pre-paid membership dues from the likes of AOL, Google, MSN, New York Times Digital, Yahoo and others. The investment funded research initiatives, development of new industry guidelines and the expansion of the IAB’s events offerings.

“We were willing to front that money to the IAB in exchange for not paying dues for the next three to four years,” said Moore. “The purpose was to help the IAB become bigger quicker,” he continued.

Another easy way to expand: open up membership to vendors. In 2003, the organization did just that, creating a second tier of associate members, comprised of technology firms serving advertisers and publishers. These new members would be afforded fewer privileges than general members; for instance, they have no voting rights.

The decision to broaden the membership base didn’t sit well with some concerned about conflicts of interest. After all, how could an organization representing online publishers maintain a cohesive stance on industry issues when also representing tech companies and agencies with different viewpoints and priorities?

“Letting vendors be members was shakey ground for me,” said Bratton, no longer an IAB board member. “That was a compromise made to get revenue.” Still, she admitted, the “compromise” may have been necessary to the IAB’s growth.

To not have vendors participate “actually would hurt; we’re all selling stuff to each other,” said Peter Naylor, IAB board member and SVP of digital media sales for NBC Universal.

Years later, the bureau counts over 100 associate members, and, by publicly challenging two of them recently, may have quelled any remaining concerns regarding the IAB’s dedication to the needs of its core publisher members. In April, new IAB CEO Randall Rothenberg sent an open letter to online measurement firms comScore and Nielsen//NetRatings, lamenting a lack of confidence in audience measurement data provided by the firms. Since demanding the companies accelerate their lagging audit processes, the IAB has gotten its way, and both firms have moved ahead.

If anything, the apparent success of the IAB’s bold demand exemplifies its status as a legitimate and respected organization. Surely it hopes to be taken as seriously in its efforts to influence Capitol Hill. The organization opened a Washington, D.C. office in February and named a VP of public policy to advocate for IAB members on issues such as spyware, privacy, data security and net neutrality.

IAB Financials 2003-2005
Type of Income or Expense	2003 IRS Data	2004 IRS Data	2005 IRS Data
program service revenue	$1,094,159.00	$1,873,489.00	$1,789,819.00
membership dues and assessments	$2,009,037.00	$2,585,940.00	$3,248,386.00
interest on savings	$6,011.00	$16,657.00	$42,986.00
net assets, fund balances end of year	$-1,790,689.00	$-2,266,005.00	$-2,148,988.00
meeting and event funded research program revenue	$1,094,159.00	$1,873,489.00	$1,789,819.00
advertising revenue	$5,513.00	$42,663.00	$22,404.00
industry product revenue	$7,315.00	$8,218.00	$106,691.00
other revenue	$14,374.00	$50,881.00	$130,989.00
compensation of officers, directors, etc.	$270,000.00	$326,815.00	$351,024.00
other salaries and wages	$1,139,013.00	$1,337,263.00	$1,347,034.00
other employee benefits	$79,106.00	$70,287.00	$21,289.00
legal expenses	$123,767.00	$82,047.00	$32,355.00
equipment rental and maintenance expenses	$4,758.00	$7,104.00	$26,508.00
printing and publications expenses	$4,715.00	$7,065.00	$288.00
travel expenses	$81,590.00	$98,798.00	$92,205.00
occupancy expenses	$92,858.00	$142,080.00	$158,673.00
total functional expenses	$4,168,204.00	$5,002,283.00	$5,095,163.00
total revenue	$3,123,581.00	$4,526,967.00	$5,212,180.00
total expenses	$4,168,204.00	$5,002,283.00	$5,095,163.00
deficit/excess	$-1,044,623.00	$-475,316.00	$117,017.00