Ad Revenue Keeps Breaking Records

Recording its 18th consecutive quarter of positive growth in the US, the Internet advertising industry broke the $2 billion mark in the second quarter of 2000, amassing $2.1 billion in revenue, according to the Internet Advertising Bureau’s (IAB) Internet Ad Revenue Report, conducted by PricewaterhouseCoopers.

The $4.1 billion total for the first half of the year is approaching 1999’s full-year total of $4.6 billion, with a run rate in the $8 to 10 billion range. The report also found that revenues for the second quarter grew 8.8 percent, or $171 million over the first quarter of 2000, and 127.3 percent or $1.2 billion over the comparative second quarter of 1999.

Top Categories for Online Ad Revenue Q2 2000
Category	Percent of Revenue
Consumer-Related	30%
Computing	17%
Financial Services	15%
Business Services	10%
Media	9%
Source: IAB/PricewaterhouseCoopers

“While the online advertising industry may be taking a breather from its explosive growth over the past several years, a $2 billion quarter signals the continued health of the Internet as it evolves into history’s most robust medium for advertisers and marketers,” said Rich LeFurgy, IAB Chairman and General Partner in WaldenVC. “Far from being broken, the industry is seeing very sizable increases in online advertising from large traditional advertisers. Importantly, the ‘throw it up against the wall to see what sticks’ test-type efforts are gone, as the ad community now knows that the Internet is a market-share driver, and the marketplace now understands that this is a brand building and direct marketing medium.”

According to the report, the categories that led online spending during the second quarter were consumer-related (30 percent), computing (17 percent), financial services (15 percent), business services (10 percent), and media (9 percent). The report also found that the overwhelming number of revenue transactions (95 percent) continue to be cash-based with barter/trade and packaged deals accounting for 5 percent of total revenues. Banner advertisements continue to be reported as the predominate type of advertising, accounting for 50 percent for Q2, sponsorships were at 27 percent, classified ads accounted for 7 percent, referrals were 4 percent, interstitials at 3 percent, email at 2 percent, rich media 2 percent, and keyword searches 1 percent.

Pricing models for Internet advertising remained fairly constant in the second quarter with hybrid deals accounting for 46 percent, CPMs or impression-based deals at 44 percent and performance-based deals at 10 percent.

“In the long term, the robust nature of the Internet will continue to lead the world economy, but there will be some bumps in the road, as we have seen in virtually every advertising medium as it grows in importance,” said Tom Hyland, Chair, PricewaterhouseCoopers New Media Group. “A significant finding of this report is that online advertising continued to increase in the midst of a turbulent phase of the medium’s growth, and that advertising became more concentrated in the higher profile sites and portals, signaling that the smart money is going where the traffic is. The first half of 2000 has accounted for almost the full year 1999 revenues, and a run rate in the $8 to 10 billion range. The historical fourth quarter bump in ad revenue, combined with the ‘use it or lose it’ budgets, we look for 2000 to be a very good year for the industry.”

Conducted by the New Media Group of PricewaterhouseCoopers on an ongoing basis, with results released quarterly, the “Advertising Revenue Report” was started by the IAB in 1996, and represents data from more than 200 companies representing thousands of sites.