US Online Ad Market Slows in 2008, but Still Grows

IDG News Service — Online advertising spending in the U.S. grew considerably less in 2008 than in prior years, but the mere fact that it increased over 2007 is a positive sign, considering the economic crisis that started last year.

That's the conclusion from the 2008 Internet Advertising Revenue Report, released Monday and sponsored by the Interactive Advertising Bureau (IAB) and conducted by PricewaterhouseCoopers (PwC).

U.S. online ad spending reached US$23.4 billion in 2008, a 10.6 percent increase compared with 2007. By comparison, overall U.S. ad spending shrunk 2.6 percent in 2008, The Nielsen Company reported earlier this month.

This is a sign not only that online advertising is weathering the economic crisis better than other forms of advertising, but that it is an undeniably effective and accountable vehicle for companies to market their products and services, said Peter S. Fader of the Wharton School of The University of Pennsylvania, during a conference call held by the IAB and PwC to discuss the report.

"There have always been a lot of naysayers out there about Internet advertising who have said it's a passing fad, or it's overblown, or it's just a little niche, or it just complements other types of advertising," Fader said. "It's time to acknowledge that Internet advertising has grown up, it's a fairly mature industry and it deserves a place at the table."

Nonetheless, the growth in online ad spending pales in comparison to the 26 percent jump in spending recorded in 2007 over 2006. Annual online ad spending has grown for the past six years, after declining in 2001 and 2002.

In the fourth quarter of 2008, spending was $6.1 billion, up 2.6 percent compared with the same quarter in 2007, and 4.5 percent compared with 2008's third quarter, the smallest quarterly sequential increase since 2001.

Search advertising, from which Google generates most of its revenue, broadened its lead as the preferred online ad format, accounting for 46 percent of spending in 2008's fourth quarter, up from 42 percent in the same period in 2007. For the full year, the search format had a 45 percent share, up from 41 percent in 2007. It has been the most popular ad format since 2004.

Search was followed by the display format with a 33 percent share, down 2 percent from its 35 percent share in 2007's fourth quarter. The display format includes banner ads, rich media, digital video and sponsorships. For the full year, display ads' share fell to 33 percent from 34 percent in 2007.

The top 10 ad sellers collectively increased their share of spending, grabbing 72 percent of the pie in the fourth quarter, up from 69 percent in the same quarter in 2007.

Retailers remained the top spenders, as a group, accounting for 22 percent of online ad spending in 2008, followed by financial services firms (13 percent), automotive companies (12 percent) and computer industry vendors (12 percent).