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Search-ad revenues grow amid market malaise

Growth in the market is apparent through the third quarter, despite the financial meltdown, according to an industry report and a Wall Street analyst.

Despite an economic turndown, online advertising--and search in particular--is managing to keep its market intact, according to reports on Tuesday by an industry trade group and Wall Street analyst.

According to the Interactive Advertising Bureau, Internet advertising revenues rose 15.2 percent, to $11.5 billion during the first six months of the year, compared with the same period last year. And search advertising grabbed a larger piece of the share, accounting for 44 percent of the market--up 3 percentage points.

Search advertising generated nearly $5.1 billion during the first half of the year, up 24 percent from a year ago. Display advertising, meanwhile, also grew at a double-digit pace of 19 percent to $3.8 billion over the course of the first half of the year.

Internet ad revenues by ad format
Here's how Internet ad revenues broke down by advertising format for the first six months of 2008. See below for additional charts. Interactive Advertising Bureau

But what about the third quarter and the market meltdown during the early days of the fourth quarter?

Two players in online advertising say conditions are remaining stable, according to a Tuesday report by JPMorgan analyst Imran Khan.

Search engine marketing (SEM) companies such as Didit and Reprise Media report that third-quarter search budgets were up, mainly due to a shift from more traditional marketing to search advertising., which manages 100 accounts, with an annual advertising budget of $150 million to $200 million, and Reprise Media, which has 80 clients, with a minimum ad spend of $100,000, report that their respective customer bases increased their search advertising budgets by anywhere from 3 percent to 7 percent in the third quarter, compared to the previous quarter.

And these advertising companies noted that one of the contributors was the emergence of new categories for search advertising, such as pharmaceuticals and entertainment.

Khan, in his research report, noted:

We feel comfortable with our U.S. search-advertising revenue estimates. As we are seeing our thesis of increased performance-based online ad spend play out, we are comfortable with our 2008 U.S. search-advertising revenue growth estimate of 27 percent year over year. We also feel that our (third quarter) estimate for low-single-digit sequential U.S. revenue growth at Google is achievable.

Additional charts from the Interactive Advertising Bureau

Second-quarter Internet ad revenue
This chart shows how second-quarter Internet ad revenue has grown (or not) over the last decade. Interactive Advertising Bureau

Internet ad revenue growth over time
Here's a look at how Internet ad revenue has grown over 20 of the last 23 quarters. Interactive Advertising Bureau

Internet ad revenue by industry category.
This chart breaks down Internet ad revenues by major industry category for the first half of 2008 (light blue), compared with the first half of 2007. Interactive Advertising Bureau