Online Ad Spending Relatively Stable in ’08

Online ad spending growth continues to slip, but the industry’s primary trade association remains optimistic about its future. The Interactive Advertising Bureau, in conjunction with PriceWaterhouseCoopers, revealed fourth quarter and full year 2008 Internet ad spending numbers this morning, showing growth in 2008 of more than 10 percent over the previous year.

Web ad spending hit $23.4 billion in 2008, up 10.6 percent over 2007. Fourth quarter 2008 revenue growth was more conservative at 2.6 percent; total online ad spending for the quarter was $6.1 billion. PriceWaterhouseCoopers conducted the research.

Industry growth was cut by more than half, dropping from 26 percent in 2007; David Silverman, partner at PriceWaterhouseCoopers, pointed to the economic downturn as the cause of that reduced rate of growth.

“When you really look back at the economy…[online advertising is] probably one of the few things that actually grew in the fourth quarter of 2008,” suggested Silverman, adding the report, “truly demonstrates the strength of the sector.”

Trends indicated in recent years continue to take hold. Advertisers are moving steadily toward performance-based online ad offerings, as less-provable formats like sponsorships are on the wane. Search advertising revenues were up 20 percent in ’08, and search now accounts for 45 percent of all online ad spending. ROI-focused lead-generation spending also increased slightly last year. Meanwhile, sponsorships declined 40 percent, according to Silverman.

Display ad spending “began to decline in the fourth quarter…led primarily by sponsorships,” said Silverman. Display advertising continued to represent around one-third of online ad spending in 2008, though performance-based selling models gained ground over CPM-based models. Performance-based offerings accounted for 57 percent of all spending, up from 51 percent in 2007. CPM-based ads dropped from 45 percent in 2007 to 39 percent in ’08; hybrid pricing models were flat at 4 percent.

Silverman cited video ad spending as a significant growth category. Video advertising revenue rose from 2 percent in 2007 to 3 percent of overall online ad spending in 2008.

The only advertiser verticals that gained share of overall online ad spending were computing, telecom, and consumer packaged goods, a category slow to gravitate toward Web advertising. CPG spending accounted for 6 percent of all online ad revenues, up from 4 percent in 2007. “That’s something that would have been unthinkable just a few years ago,” said Professor Peter Fader, co-director of Wharton Interactive Media Initiative at The Wharton School of the University of Pennsylvania.

Retail advertising experienced the largest drop in share, from 25 percent to 22 percent. Decreases in share of spending by financial, travel, and entertainment advertisers were reflective of the macro economic environment, said Silverman.

Ad spending by auto advertisers was flat year-over-year, something that Silverman took as a good sign indicating continued interest in online ad spending by car makers “despite obviously significant softening in that sector.”

Overall, Fader suggested the stability of online ad revenues is a key sign of the industry’s maturity. “We’re not seeing the wild swings that we’ve seen before in this sector,” he said.

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