Online Ad Revenue Soars in Q3 2005

U.S. Internet ad revenue shot up in the third quarter as companies continue to shift advertising dollars to the online medium, the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers said on Monday.

Online ad spending increased 34 percent during the third quarter, reaching US$3.1 billion, compared with 2004’s third quarter, and outpacing the 26 percent growth recorded in the first half of 2005.

This should be music to the ears of vendors such as Google Inc. and Yahoo Inc., which derive most of their revenue from online ads, and Microsoft Corp., which is starting to adapt its business model to capitalize on Internet ads.

On average, people today spend about 14 percent of their “media time” on the Internet, up from basically zero ten years ago, and advertisers are reacting to this change, said Greg Stuart, the IAB’s president and chief executive officer. “When consumers shift like that, marketers are sure to follow,” he said.

On top of that, many companies are finding that online ads are often more cost-effective for them than other types of ads, he said.

Growth should continue unabated, since online ad spending is still less than 4 percent of total ad spending in the U.S., which means that companies are still not devoting as much money to Internet advertising as they should, Stuart said. “I wouldn’t expect this to slow down any time soon,” he said.

At this rate, the IAB expects U.S. Internet ad revenue to top $12 billion this year, a big increase over 2004’s $9.6 billion, Stuart said.

Although the IAB study is limited to the U.S., online ad spending internationally is also experiencing significant growth, he said.

By Juan Carlos Perez, IDG News Service