U.S. online ad market slows in 2008, but still grows

Spending grew nearly 11%, but far less than in 2007

Online advertising spending in the U.S. grew considerably less in 2008 than in prior years, but any increase 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 (download PDF), released today and sponsored by the Interactive Advertising Bureau (IAB) and conducted by PricewaterhouseCoopers (PwC).

U.S. online ad spending reached $23.4 billion in 2008, a 10.6% increase compared with 2007. In comparison, overall U.S. ad spending shrank 2.6% in 2008, The Nielsen Co. 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 effective and accountable vehicle for companies to market their products and services, said Peter S. Fader, a professor at the Wharton School of the University of Pennsylvania, during a conference call held by the IAB and PwC.

"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% 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% compared with the same quarter in 2007, and up 4.5% 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% of spending in 2008's fourth quarter, up from 42% in the same period in 2007. For the full year, the search format had a 45% share, up from 41% in 2007. It has been the most popular ad format since 2004.

Search was followed by the display format, with a 33% share, down 2% from its 35% 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% from 34% in 2007.

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

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

Copyright © 2009 IDG Communications, Inc.

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