November 11, 2003 8:05 AM PST

Web advertising continues revival

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New research indicates that the U.S. online advertising sector experienced solid growth over the first half of 2003, with ads linked to keyword searches leading the expansion.

A report published Tuesday by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers highlighted the third consecutive quarter of positive gains for the online ads business. On whole, Internet advertising revenue for the first half of 2003 was $3.29 billion, a 10.5 percent increase over the $2.97 billion in revenue recorded over first half of 2002.

The Web-based advertising industry recorded revenue of $1.66 billion for the second quarter of 2003, a 1.7 percent increase over revenue of $1.63 billion reported for the first quarter of this year. The positive results represent the first time the online advertising industry has grown for three consecutive quarters in two years.

The second-quarter performance represents even more impressive year-over-year growth, as the returns show a nearly 14 percent increase over the $1.46 billion in Web advertising revenue reported for the second quarter of 2002. Online advertising peaked in 2000 with $8 billion in revenue before falling to $7.1 billion in 2001, and $6.0 billion in 2002, according to IAB's numbers.


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IAB chief executive Greg Stuart said the results indicate growing proof that the online medium is providing a solid opportunity for advertisers, and he predicted continued success for the sector. Stuart pointed to expansion in Internet usage and broadband adoption as key indicators that the industry remains poised for further recovery.

"Consumers are increasing the value they place on the Internet, and with broadband in the home making the Web more accessible, there is going to be more growth," he said. "People are making buying decisions based on what they do and see online."

The so-called keyword search segment of the industry, or targeted ads generated when people enter queries into a search engine, remained the leading area of growth in the industry, increasing to 31 percent of total ad revenue for second quarter 2003. Traditional banner ads and classifieds followed the keyword search sector, representing 22 percent and 18 percent of the second quarter revenue, respectively.

Among the leading benefactors of the growing popularity around keyword advertising has been search giant Google, which reported in September that it had signed up 150,000 active monthly advertisers, in part because of the attractive return on investment it offers. Google lets advertisers bid for placement atop or next to search results related to keywords.

Stuart credited Google and rival search provider Overture Services, a Yahoo subsidiary, as pioneers in the keyword search advertising space and said he expects continued growth in the segment as big name advertisers warm to the concept.

"The direct-marketing crowd is proving the value of the (keyword search) medium," Stuart said. "And when the direct marketers find a medium that is hot, usually the brand advertisers are not too far behind."

Stuart said he expects improved performance for banner ads as multiyear contracts that were established at the peak of the Web advertising industry's growth continue to expire and the market finds its "equilibrium."

Some 95 percent of online advertising deals reported in the second quarter were in cash, up from 90 percent in the same period a year ago. Barter or trade deals continued to shrink as a result.

The IAB sponsors the twice-yearly Internet Ad Revenue Report, which is conducted by the New Media Group of PricewaterhouseCoopers.

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