IAB: Industry Rebounded in Q4, Upping Revenue Despite Slowdown

The online advertising industry increased its revenue during fourth quarter 2000, bouncing back from a third-quarter decline, according to the sector’s largest trade association.

According to new findings in the Interactive Advertising Bureau’s ongoing study of online ad spending, the industry made $2.2 billion during the fourth quarter of 2000, or about 9 percent more than it did in the previous quarter.

That’s good news, since industry revenue dropped 6.5 percent during third quarter, to $1.99 billion, according to the IAB and PricewaterhouseCoopers, which conducts the quarterly study.

Part of the growth comes from decreased reliance on banner ads as a source of income. Indeed, banner advertising’s contribution to overall revenue slipped from 46 percent to 40 percent from third to fourth quarters.

Meanwhile, other types of advertising deals — less affected by the spending slowdown than traditional banners — grew as banner ads declined. For instance, sponsorship deals brought in 31 percent of total revenue, up from 28 percent in third quarter, while classified ads brought in 10 percent, up from 4 percent previously.

For the full year, PWC and the IAB said the industry saw $8.2 billion in revenue, in line with lowered predictions. PWC analysts had reduced their estimates for a $8 million to $10 million full-year take, following signs of industry slowdown in second quarter.

Year-over-year, the industry’s revenues grew 78 percent from 1999. That’s about half of the industry’s growth rate from 1998 to 1999, and about two-thirds of the 112 percent growth from 1997 to 1998.

IAB spokespeople shied away from specific suggestions that the medium’s troubles might be ending, although chairman Rich LeFurgy did say the news suggests the industry is approaching maturation.

“The Internet, as a vehicle for advertisers, is still in its infancy, a fact that most observers of the industry forget,” he said. “As our base gets bigger and bigger, the days of double and triple digit growth are gone, as they would be for any industry that grew at the rate that the Internet did.”

“While the overall economy has played its part in the slowdown, we would have stopped growing at the previous rates anyway. We’re a reality-based industry now, and in the long run that may be the most important thing for the industry’s long-term health.”

LeFurgy also added that the IAB anticipates benefits arising from new ad formats and the “recalibration in expectations of [Web advertising’s potential for] brand-building and direct marketing — that it’s just not one or the other. And … we’ve got a much better base without the dot-com advertisers, and with traditional advertisers stepping up.”

But as with previous quarter’s figures, questions loom about the accuracy of such figures, which show sizably more income than do other industry-watchers’ numbers. For instance, Competitive Media Reporting’s Internet unit reported about $2.8 billion in revenue for the industry — for all of 2000, not just its last quarter.

But IAB and PWC officials are quick to explain away the $5.4 billion difference between CMRs’ and the IAB’s findings for the year’s ad spending.

While CMR uses Web-crawling technology as the basis of its data collection, the IAB/PWC study asks leading sellers of Web advertising (approximately the top 50 companies by revenue) to contribute their figures to an aggregated report. Because those numbers are kept confidential, PWC’s Pete Rusky said rep firms and publishers are willing to submit their sales figures — data that’s he says is more accurate than information obtained via Web-crawlers.

PWC also said it matches these submissions with public companies’ reported statements.

CMR, for its part, has maintained that its methodology — which combines Web-crawler findings with analysis by CMR’s media specialists — is more accurate, being less prone to exaggeration by advertising sellers.

The IAB/PWC study’s authors also contend that other studies could be missing large chunks of revenue by focusing specifically on publishers of Web banners, rather than alternative forms of advertising, like referrals and email.

“It’s not just Web sites,” said Rusky, who is director of PWC’s New Media Group. “It’s ISPs, consumer online services, email providers, the whole universe.”

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