Web advertising's glimmer of hope

U.S. Internet ad revenue is up 1 percent from second-quarter sales, marking the industry's first uptick in six quarters, according to a new study.

Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
Stefanie Olsen
3 min read
Web advertising sales grew slightly in the third quarter from the previous three months, buoyed by a several top performers, but overall revenue is still down from 2001, according to a new study.

U.S. Internet ad revenue totaled $1.47 billion, up 1 percent from second-quarter sales, marking the industry's first uptick in six quarters, according to a study from the trade group Interactive Advertising Bureau (IAB) and independent auditor PricewaterhouseCoopers' New Media Group. However, sales represented an 18 percent drop from the third quarter's $1.79 billion in 2001.

The IAB figures were released on the same day that an international study forecast positive growth for the industry in 2003.

Marketers globally are expected to direct more of their spending to the Internet in 2003 at the expense of traditional media, according to a study released Tuesday from the University of London's London Business School and commissioned by French ad agency Havas. The study found that marketers worldwide will increase their total spending on the Internet from 6.1 percent in 2001, to 7 percent in 2003. Spending accounts for Web advertising and marketing via e-mail, wireless devices and Web site improvements.

The study takes the temperature of estimated marketing spending in the top five markets: the United States, Germany, Japan, the United Kingdom and France. It surveyed 700 executives from companies that spent at least $1 million last year on marketing, which includes traditional and interactive advertising, direct mail, public relations, and sponsorships and sales promotion.

Total worldwide marketing spending is expected to rise by 3.3 percent from 2002 to 2003, according to the study. The United Kingdom will lead spending, with expenditures up 5.3 percent from this year to next. The United States follows, with growth at 4.4 percent. In contrast, Japan's marketing spending will go down by 1.5 percent in the same period.

In the United States and the United Kingdom, interactive ad spending will see its biggest leaps in the coming year based on advertisers' view of the medium as effective and cost-efficient, according to the London study. From 2001 to 2003, U.S. marketers will up their online spending by nearly 25 percent and U.K. advertisers by 47 percent.

Many top online ad sellers experienced growth in 2002 despite economic doldrums, according to the IAB and PricewaterhouseCoopers study.

The report said that despite a rise of only 1 percent, nine of the top 15 companies reported year-over-year revenue growth that averaged gains of 66 percent in the third quarter of 2001 compared with the same period in 2002. PricewaterhouseCoopers provides estimates for third-quarter sales based on reports from the top 15 online ad sellers, including America Online, Yahoo and MSN. PricewaterhouseCoopers says the top sellers account for more than 80 percent of industry sales.

"While we are reporting a modest gain quarter to quarter, the reality is that the growth in the interactive advertising sector, as demonstrated by the top 15 sellers, is much stronger than is reflected in this report," IAB President Greg Stuart said in a statement.

Some key Internet companies have given disparate forecasts reflecting the health of the online ad market. Yahoo and MSN, for example, have both reported a rise in online ad sales in recent months. Yahoo chief Terry Semel in recent weeks predicted that revenue from marketing services in 2003 will increase by 20 percent.

In contrast, AOL has said that it expects sales from online advertising and e-commerce to drop between 40 percent and 50 percent next year, in addition to steep declines in 2002. Analysts have said that ongoing ad woes at AOL appear to reflect unique conditions within the company rather than an industrywide trend.

Still, the IAB sales estimates reflect a continuing downturn for the industry as a whole. For the first half of the year, Web ad revenue totaled $2.98 billion, according to the industry trade group. Combined with third-quarter figures, sales reached $4.45 billion, a nearly 20 percent drop for the comparable time frame in 2001.

Tom Hyland, chair of PricewaterhouseCoopers' New Media Group, said that while slight growth is positive it should be viewed cautiously "as we believe that the positive steps that are being taken are as much cost-driven as they are recovery-oriented.

"Add to that the historically stronger performance of the fourth quarter, and it appears interactive advertising may end the year with two consecutive growth quarters," he said.