Online ad spending maintained healthy growth in 2006

Online ad spending grew 34% in 2006, continuing a recovery after the dot-com crash

Online advertising spending in the U.S. grew 34% in 2006, compared with 2005, as marketers continued expanding their use of the Internet to promote their products and services, according to a new study.

With an estimated $16.8 billion spent, the U.S. is a "healthy environment" for online advertising, the Interactive Advertising Bureau and PricewaterhouseCoopers said Wednesday.

Convinced that Internet advertising's effectiveness continues to improve, U.S. companies are steadily increasing their online marketing budgets, the organizations said. Ad spending grew an estimated 32% in the fourth quarter to $4.8 billion, the highest quarterly total ever.

The U.S. online ad market's growth will remain in the double digits for at least the next five years, said Peter Petrusky, director of PwC's entertainment, media and communications practice. Helping fuel that growth is the increasing adoption of broadband, which results in people spending more time online and offers a platform for rich media ads that dial-up connections can't render, he said. "We expect video advertising to really ratchet up in 2007," Petrusky said.

There is also an imbalance between the Internet's portion of people's media time -- 20 percent -- versus the Internet's percentage of total ad spending, which is about 5 percent, he said. That disproportion indicates marketers aren't spending enough on online ads, another sign considerable room for growth remains, he said.

With another year of solid growth, the U.S. online advertising market is distancing itself more from the difficult years that followed the dot-com bust, when spending money for online marketing was somewhat discredited.

After peaking at $8.2 billion in 2000, U.S. online ad spending fell in 2001 and 2002, but it began regaining ground in 2003, as the once disgraced Internet industry showed its first signs of recovery and the start of the Web 2.0 era.

In 2004, with the emergence of Google Inc. as a search engine and advertising powerhouse, online marketing increased its momentum. That year, the market finally broke the 2000 record, ending with $9.6 billion in online ad spending, and Google's initial public offering became further proof of the Internet industry's rebound.

By growing every year since 2003, online ad spending has played a major part in fueling a new wave of technical innovation and venture capital investment in the Internet market. A particularly vibrant segment has been search engine pay-per-click ads, the format that generates most of Google's rising revenue.

The Interactive Advertising Bureau and PricewaterhouseCoopers reached their estimates from data they collected from the top 15 online ad sellers in the U.S. The organizations will report actual results for the third and fourth quarters of 2006 next month.

Copyright © 2007 IDG Communications, Inc.

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