US Online Advertising Revenues Grow by 10.6% in 2008 to $23.4 Billion – Part I

Posted by Chris Patheiger

The Internet Advertising Bureau (IAB), in conjunction with PricewaterhouseCoopers, recently released its account of 2008 US Online Advertising Full-Year Revenue results and the news is GOOD. The industry grew by a 10.6% in 2008 which represents a slow down on the average pace of 30.75% rate of growth set in the previous four years. Not bad for the “newbie” of all media.

Internet advertising is sitting squarely in third place in the spending race behind Newspapers and TV Distribution and is closing the gap as it continues to outpace growth of Cable and Broadcast Television (based on Internet’s first 14 years). Internet has already eclipsed Radio, Consumer Magazine, Directory and Out of Home.

Here is a quick summary of the key findings:

• Full year Internet advertising revenues of 2008 totaled $23.4 billion, up 10.6 percent from the $21.2 billion reported in 2007

• Search revenue continues to lead representing 45% or $10.5 billion of 2008 full year revenues, up ~4% from 41% or $8.8 billion reported in 2007

• Display advertising revenues continue to see growth (contrary to industry pundit and guru predictions) of nearly 8% to $7.6 billion or 33% of 2008 revenues. Media formats contributing to this number break out as follows:

• Display banner ads represented 21% or $4.9 billion

• Rich Media represented 7% or $1.6 billion

• Video up to 3% or $734MM

• Sponsorship at 2% or $387MM

• Online Classified revenues accounted for 14% or $3.2 billion, down 4% from the $3.3 billion or 16% composition in 2007

• Lead Generation revenues grew 6% from $1.6 billion reported in 2007 to $1.7 billion or 7% of 2008 full year revenues

• Performance based pricing models have maintained strong sequential growth and have emerged as the most prevalent pricing model since 2006. It’s followed by CPM or impression based pricing.

• Hybrid pricing models have seen the largest loss in %/rev over recent years, dropping from 17% in 2004 to 4% in 2008

David Hallerman, Senior Analyst with eMarketers’ early estimates for 2009 is that the industry in aggregate should come in around $25.7 billion, about 8.9% higher than 2008 – like with the Canadian market, not bad considering global economic conditions. 2009 revenue estimations is a “best guess” at this point and by now means considered “take to the bank”. Not only are 2009 estimates the lowest year-over-year increase for online advertising ever, they still represent a marked increase compared with nearly all other forms of media. $25.7 billion for all intents and purposes will be optimistic.

For more information on 2008 US Online Advertising Revenue and eMarketer News check out www.iab.net and www.emarketer.com respectively.

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Chris Patheiger is a Vice President at Redux Media, a leading international online publisher network of top-quality, specialty websites and media representation firms. Chris is responsible for Communications, Sales and E-Publisher of the Redux Blog. He can be reached at chris@reduxmedia.com