Numbers Show Signs of Online Ad Slowdown

The online ad industry has released numbers documenting the 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, 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.”

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 the second quarter’s findings.

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

He also echoed IAB statements 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,” LeFurgy 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.


Online Ad Spending by Quarter
($ millions)
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2000 1,953 2,100 1,986 NA
1999 693 934 1,217 1,700
1998 351 423 491 656
1997 129 214 227 336
1996 30 52 76 110
Source: IAB/PricewaterhouseCoopers

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