Online Ad Sales Show Sustainable Growth

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November 11, 2003 (2:12 PM EST)

Online-advertising sales were up for the third straight quarter in the second period this year, showing sustainable growth after a long period of decline, an industry trade group reported Tuesday.

Ad sales totaled $1.66 billion in the second quarter, a 13.9 percent increase over the same period a year ago, the Interactive Advertising Bureau said. Revenues were up 1.7 percent from the first quarter.

For the first half of the year, ad sales increased 10.5 percent over last year, to $3.29 billion, the IAB said.

The second quarter was the third period of sequential growth, which followed seven quarters of decline, as Internet companies struggled to attract advertisers following the dot.com bust that sent stocks and revenues spiraling downward.

The worst, however, appears to be over.

"There is nothing negative on the horizon for the online advertising industry," Greg Stuart, president and chief executive for the IAB, said. "I really do believe that this is the beginning of a long decade of growth."

A major contributor to the expected rise is the change in consumer behavior. The time spent online by consumers is increasing, and the Internet has become a major vehicle for product research before purchases, Stuart said. In addition, the increasing number of broadband subscribers makes it possible to introduce more interactive ads that make use of sound and video to attract consumers' attention.

In the third quarter, several media companies reported increases in online ad revenues, including Yahoo Inc., which reported a 48 percent jump, to $245.1 million from a year ago; and the New York Times Co., which reported a 20 percent revenue increase, to $21.8 million for its online unit, primarily due to higher ad sales.

A decline in ad sales, however, at Time Warner Inc.'s America Online unit dampened overall revenues for the first half of the year. Excluding AOL, overall sales would have been up 28 percent instead of 10.5 percent, the Wall Street Journal reported.

The IAB report is conducted by PricewaterhouseCoopers, which compiles the figures by surveying more than 100 top online-ad firms. The report is closely watched by the ad and online industries, and analysts and online publishers often use the figures as benchmarks.

The second quarter figures showed paid-search ads taking an increasing share of the revenue pie, at the expense of other ad formats. Paid-search ads accounted for 31 percent of overall revenue from 9 percent a year ago, while traditional banner ad sales continued their decline to 22 percent from 32 percent.

Stuart, however, predicted that display ads would eventually recover. Most paid-search advertising is used by direct marketers focused on making quick sales. Based on sales patterns in other advertising media, the success of marketers is expected to spur companies looking to build brand awareness to take another look at the multimedia possibilities of banner ads.

"There's no reason to believe that [brand advertisers] won't just follow suit like they always have," Stuart said.