Internet Ad Revenue Feeling Signs of Economy, Maturity

Internet advertising in the United States reached $2.2 billion in revenue for the fourth quarter of 2000, bringing total online revenue for the year to $8.2 billion, according to the Interactive Advertising Bureau’s (IAB) Internet Ad Revenue Report, conducted by the New Media Group of PricewaterhouseCoopers.

The $2.2 billion in revenue is an increase of 9 percent over the $1.986 billion for the third quarter of 2000, but the percentage increase is markedly lower than historical levels, which the IAB and PricewaterhouseCoopers, said is reflective of the overall slowdown in ad revenue across all media sectors, in addition to a higher revenue base.

“The turbulence that has affected all advertising sectors in the past six months has also quite naturally impacted the Internet. While we have continued to grow as an industry, that growth has been tempered by the times, and I would expect that we will see this reflected in future reports,” said Robin Webster, President & CEO of the IAB.

The categories that led online spending during the fourth quarter of 2000 were: consumer-related (32 percent, 31 percent for the year); computing (21 percent, 18 percent for the year); financial services (13 percent, 14 percent for the year); business services (6 percent, 9 percent for the year); media (9 percent, 8 percent for the year).

The report also found that in the fourth quarter the vast majority of revenue transactions (92 percent) were cash-based with barter/trade and packaged deals accounting for 7 percent, and 1 percent of total revenues respectively.

According to the IAB, the decrease reported in revenue from traditional banners is due in part to to the bigger interactive marketing units that the IAB unveiled standards for earlier in the year. Banner revenues have decreased considerably in the fourth quarter, accounting for 40 percent of the quarter’s online ad revenues (down from 46 percent in the third quarter and 47 percent for the year) with sponsorships 31 percent, (28 percent for the year), classifieds 10 percent, (7 percent for the year), referrals 5 percent, (4 percent for the year), interstitials 5 percent, (4 percent for the year), email 4 percent, (3 percent for the year), rich media 2 percent, (2 percent for the year) and keyword searches 2 percent, (1 percent for the year).

Top Online Ad Categories
Category Percent of Spending
Q4 2000 Year 2000
Consumer related 32% 31%
Computing 21% 18%
Financial services 13% 14%
Business services 6% 9%
Media 9% 8%
Source: IAB/PricewaterhouseCoopers

IAB Chairman Rich LeFurgy was quick to point out that Internet advertising has not only been affected by the downturn in the economy, but has also been the victim of its maturation.

“The Internet, as a vehicle for advertisers, is still in its infancy, a fact that most observers of the industry forget,” LeFurgy 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. I fully expect that in the next few years, the Internet will continue to generate solid revenue growth, and with the emergence of revenue from the wireless and ITV advertising industries, interactive advertising will set the pace going forward.”

The Internet is also beginning to take on characteristics associated with more traditional forms of media, such as the eyeballs and ad dollars residing with the biggest brands.

“The message to be taken out of this report is that the Internet is a strong advertiser medium. As one might expect, the advertising community is intent on reaching the 140 million plus online audience, but they are being more selective in their approach,” said Tom Hyland, Chair, PricewaterhouseCoopers New Media Group. “That is why we see a higher concentration of ad spending in the top-tier sites. Like most ad-supported media, this advertising medium is not a level playing field and the big continue to get bigger.”

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