May 24, 2004 10:54 AM PDT

Study: Online ad sales set record-breaking pace

The Interactive Advertising Bureau said Monday that online ad sales reached almost $2.3 billion in the first quarter of 2004, the highest three-month total since the group began tracking the sector in 1996.

The first-quarter estimate significantly outpaced online ad sales for the same period last year, when they accounted for $1.6 billion, a nearly 40 percent increase, the IAB said. Furthermore, the first-quarter returns were higher than those recorded for the fourth quarter of 2003, when the market reached $2.2 billion. The fourth quarter is typically the most successful period for ad sales across all communications and publishing mediums.

Greg Stuart, president of IAB, said he was "surprised" by the strength of the sector's performance and cited research from New York-based eMarketer that indicated Internet penetration will overtake cable TV market numbers this year and that the online ad sector is ready to bloom anew.

"You have more users, better advertising platforms and fewer ads that make more sense, which is a nice environment," Stuart said. "If you combine those factors with some of the other Internet statistics we're seeing, such as broadband access overtaking dial-up in the next year or so, it gives you an idea of the market's potential."

Many researchers have already predicted strong years ahead for the Web ad space. eMarketer expects U.S. online ad sales to reach $8.4 billion for 2004, an increase of more than 15 percent from last year, and higher than the 2000 peak of $8.1 billion.

Search engines are expected to provide a significant chunk of that revenue. Search advertising more than doubled to $2.3 billion in 2003. Banner ads and other types of traditional Internet advertising dropped slightly last year, to $4.9 billion.

Stuart credited the recent upswing to momentum gained over the last three years, as opposed to short-term market factors. While the executive remained bullish on innovative advertising strategies used by market leaders such as Google, he said the most effective catalyst for growth has been consistency.

"Can you look at the market from one year ago and say things are really different in a lot of ways? I'd say no," he said. "The fact is that there is a lot of wind at our backs because the message has been consistent for at least three years that the Web offers advertisers the most cost-effective alternative."

Stuart highlighted the significance of the quarter-to-quarter growth versus the final period of 2003. He said he has never seen advertising media "override seasonality." The first quarter is often the toughest across the industry. He is now expecting annual growth of 30 percent or more for the sector, an amount that exceeds predictions by many financial analysts, ranging from 15 percent to 24 percent.

Looking forward, Stuart said he expects more companies to begin fighting for the increasing number of dollars at stake in the sector. He also predicted that some companies will return to business models from the golden era of the Internet, or roughly five years ago.

"I think you'll see some people dust off older business models and bring back some ideas we heard about a few years back," he said. "It should be pretty entertaining."

Stuart said the local advertising segment, which has become a major focus for some of the Web's largest companies including Google, should continue to see success.

IAB's research is conducted by the New Media Group of PricewaterhouseCoopers, which compiles data supplied by companies that sell advertising on the Internet. IAB's first- and third-quarter revenue reports are estimates. The actual figures are released along with second- and fourth-quarter data.

 

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