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Web revenues seen continuing to rise after $4.6B tally, new study says

Internet ad revenues for the U.S. are expected to keep going up, but industry sources differ on how fast they'll rise.

Jupiter Communications had projected online ad sales to be $3.2 billion in 1999 and $4.7 billion for 2000. Figures compiled for the Internet Advertising Bureau (IAB) by Pricewaterhouse Coopers, on the other hand, had put Web ad spending at $4.62 billion in 1999.

Jupiter now projects increases to $6.5 billion in 2001, $8.8 billion in 2002 and $11.5 billion in 2003. Forecasting a more dramatic growth curve, Forrester Research sees U.S. online ad sales of $22 billion by 2004.

The 1999 numbers recorded by PricewaterhouseCoopers represent a 141% leap over the $1.92 billion reported in its 1998 annual survey for IAB, which calculates numbers from 200 companies representing more than 1,200 Web sites. That increase was significantly larger than the 112% jump in 1998.

The prime question for the immediate future is whether the current downturn in the finances of Web companies and the expected market shakeout will reverberate in the online ad market. Steve Von der Haar, analyst for The Yankee Group, thinks it won't sustain much of a hit. "Anything that would take away from start-up activity would have a dampening effect on online advertising, but I don't think you're going to see anything that will cause an overall slowdown in ads."

The novelty of banner ads has passed, according to Von der Haar, who says Web sites are under increasing pressure to prove click-through rates.

The $4.62 billion in the industry's fifth year as an advertising medium compares with $3.7 billion for the television business-adjusted for inflation-in 1953, that medium's fifth year of existence. Of course, the total broadcast TV market was $36.57 billion in 1999, according to the Television Bureau of Advertising.

The fact that the advertising landscape is vastly different from what it was nearly 40 years ago makes the comparison even more compelling, Peter Petrusky, director of PwC's new-media group maintains. "It's a much more competitive landscape. It bodes well for this medium, because it's outpacing any other medium on an adjusted-for-inflation basis.

"As the [Internet ad revenue] base begins to get higher and higher, you would expect the percentage growth in sales to slow," he notes. "But the numbers just continue to grow significantly."

In fourth quarter '99, Web companies pulled in $1.7 billion-much of it from each other-for a 161% increase over Web ad revenues for the comparable quarter in 1998. "It was crazy in the fourth quarter," says Petrusky. "They were spending on all media, so it's logical that they would spend on their own medium as well."

Barter buys played only a small role, according to the IAB report,: For full year 1999, 93% of online ad buys were cash transactions; in the fourth quarter, that figure rose to 94%.

Companies participating in the mail survey for the annual report provide written information on an anonymous basis, according to Petrusky, who notes that results are based solely on those figures, not on projections.

Through 1999, 30% of the ad buys were for consumer products, 17% were for financial services, 16% were for computing products, 12% were new-media plugs, and 7% promoted business services.

The majority of online ads were banner ads (56%), with site sponsorships representing the second biggest category (27%).