Internet Ad Revenue Up 63 Percent in 3Q

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Despite reports about declining online ad revenues, Internet advertising revenue actually rose in the third quarter year-over-year, according to the Internet Advertising Bureau.

In its quarterly report on ad revenue released this week, the IAB, New York, said third-quarter revenue rose 63 percent to $1.98 billion, compared with the same period in 1999. However, revenues fell $138 million, or 6.5 percent, compared with the $2.1 billion posted in the second quarter.

Year to date, the report said ad revenues now stand at $6.1 billion, with a continuing run rate of between $8 billion and $9 billion for the year.

The report, prepared for the IAB by PricewaterhouseCoopers' New Media Group, includes data from more than 200 companies and represents more than 1,500 Web sites.

"The slight decline in online ad revenue should come as no surprise to the industry," said Rich LeFurgy, chairman at the IAB. "The pullback 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."

Despite the softening compared with last quarter, the IAB said Internet advertising is still the "fastest-growing medium ever."

The IAB noted that banner ads still accounted for the vast majority of all Internet advertising with 46 percent of the market, though they were down from 50 percent in the second quarter. Sponsorships increased slightly, accounting for 28 percent of all online ads in the third quarter, up from 27 percent the previous quarter. Classifieds were 9 percent of all online ads, up from 7 percent in the second quarter. Referrals accounted for 6 percent and interstitials for 4 percent, up slightly from 3 percent the previous quarter.

However, the IAB said both e-mail and rich media are showing some signs of slowing. Both were flat in the third quarter, each making up 2 percent of the market. Keyword searches also accounted for 2 percent in the quarter. All other forms of online advertising accounted for only 1 percent of the market.

The categories that led online spending in the third quarter, according to the IAB, were consumer-related, accounting for 30 percent; computing, 18 percent; financial services, 14 percent; media, 11 percent; and business services, 10 percent.

The report also found that the vast majority of revenue transactions, 92 percent, were cash-based. This is down from 95 percent in the second quarter. But barter and trade deals accounted for 7 percent, up from 5 percent the previous quarter. Packaged deals, the IAB said, accounted for only 1 percent of all deals in the third quarter.

"Because of the robust nature of the medium, we have become accustomed to continued, unfettered growth," said Tom Hyland, chairman at PricewaterhouseCoopers' New Media Group. "It is important to note that in a comparatively weaker advertising market, Internet ad revenues still totaled nearly $2 billion for the quarter."
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