IAB Says Industry Revenue Dropped 6.5 Percent in Q3 Slowdown

The online ad industry provided some numbers documenting its much-touted, third-quarter revenue slowdown, as the Internet Advertising Bureau released research indicating that ad spending decreased slightly from second quarter.

The report, conducted quarterly by PricewaterhouseCoopers for the industry’s largest trade association, suggests that third quarter ad revenue, while up 63 percent over third quarter of 1999, dropped about 6.5 percent from second quarter.

“This slight decline in online ad revenue should come as no surprise to the industry,” said IAB chairman Rich LeFurgy, a partner at San Francisco-based venture capital firm WaldenVC.

“The slowdown which we are seeing this quarter has its roots in a number of factors which affect the medium. The pull-back of advertising by many companies in the dot-com sector, combined with the traditionally weak third quarter, and the transition of the advertisers’ focus on how to best take advantage of the Internet, all have contributed to the third-quarter slowdown,” LeFurgy said.

According to the report, industry-wide revenues topped $3.1 billion for the quarter, up about $2 billion from third quarter 1999. Third quarter’s take was down $138 million from the preceding quarter, which had been the industry’s eighteenth consecutive quarter of growth, according to the IAB. Year-to-date online advertising revenues for 2000 total about $6.1 billion.

PWC analysts also estimated an $8 million to $9 million run-rate for the year, although the expected range had been from $8 million to $10 million after second quarter’s findings.

Third quarter was indeed tumultuous for the industry, with several companies — like Engage, Avenue A, Mediaplex, ValueClick — cutting revenue estimates, announcing layoffs, or both. Even promotional firms such as CoolSavings, Promotions.com, and MyPoints felt the sting of slowing spending, as did interactive consultants like Luminant.

Wednesday’s report comes as the first IAB statistics detailing this much-publicized slowdown in ad spending, but officials made efforts to downplay the seriousness. LeFurgy maintained that while overall revenue dropped, the findings showed that “savvy” traditional marketers were moving to the Web in increasing numbers.

“There is no doubt that traditional advertisers are increasing their online spending, as the $6 billion year-to-date attests,” he said.

LeFurgy also echoed IAB statements earlier this week that the Web was turning into a branding medium, rather than a tool to drive sales — a state of affairs that he suggested bodes well, since traditional marketers are more familiar with brand-building media, like television and print.

“These advertisers are now transitioning their objectives,” he said. “Advertisers are no longer looking for the most traffic, rather, they are seeking different ways and new creative formats which publishers are offering, to build their brands.

According to the report, advertising for consumer-related products and services again led spending, accounting for 30 percent of total revenues, ahead of computing, financial or business services and media.

Ad formats saw some changes from previous quarter, with banner ads falling slightly from 50 to 46 percent of all online ads. Other types rose slightly in use. Sponsorship agreements topped 27 percent, followed by classifieds (9 percent), referrals (6 percent) and interstitials (4 percent). Rich media ads, keyword searches and email ads rounded out the list, at 2 percent each.

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