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Web ad revenue up 27% in quarter

As online advertising revenue continues to grow, search engines are getting the lion's share of that revenue, according to a report by Cowles/Simba Information.

    As online advertising revenue continues to grow, search engines are getting the lion's share of that revenue, according to a new report released today by Cowles/Simba Information.

    Web advertising revenue totaled $169.8 million for the third quarter ended September 30, a 27 percent increase over the $133.3 million in the second quarter, Cowles/Simba's Electronic Advertising & Marketplace Report said. That brings the year's ad revenues to date to $387.1 million.

    Yahoo (YHOO) maintained its position as the top advertiser-supported site, generating $14.7 million in ad revenue, according to the report's estimates. Excite (XCIT) and Infoseek (SEEK) came in second and third, respectively.

    While it's definitely good news for those backing advertising on the Web, the report's results don't necessarily mean that the Internet has a permanent place in advertisers' budgets. While Web advertising keeps evolving from year to year, it still is unclear how successful it is as a whole, said Matt Kinsman, editor of the report.

    The rate of "click-throughs"--a measure of how many users click on an ad--on banners still remains low and advertisers are not sure yet what they're getting by going online rather than sticking with traditional media, such as television and radio. "It's still facing its challenges," Kinsman noted. "Success is more dependent on the advertisers and what they're trying to accomplish."

    Nevertheless, "the growth has been very consistent for this year, which is a good sign for maturity of the market," he added. "Advertisers have a better understanding of how to use it, they have confidence in it, and you're seeing more mainstream users."

    Last month, the Internet Advertising Bureau released an independent study that claims Web banner ads can be an effective way for advertisers to reach Internet users, challenging the prevalent view that banners don't work for branding.

    The study, which involved 16,758 respondents at a dozen major Web sites, found high levels of ad banner awareness among participants. It also found that a single exposure to an ad banner boosted awareness dramatically and significantly affected brand perception. It also found banner ads increased a Web user's intent to buy.

    "Those are the triumvirate measures in traditional media," said Rich LeFurgy, senior vice president of ESPN/ABC News Internet Ventures and president of the IAB, an association of ad-supported Web sites and Internet services.

    Those findings may help publishers deflect pressure from advertisers that want to pay based on the "click-through rate." Major advertisers, including giant consumer products marketer Procter & Gamble, have pushed click-throughs as a way to pay only for ads clicked by users.

    Meanwhile, those companies that are already sold on the idea of online advertising are still are trying to figure out the best format for it.

    On the Web, the ad rules are a lot different. Unlike television, where it's nearly impossible to do too much, it's not so hard online. Send someone an unwanted email and you're likely to experience a backlash. The same is true for splashy, animated banner ads.

    Kinsman said many sites are making way for a wave of "interstitial" ads, which briefly take over a page so users have no choice but to watch it.

    Ironically, when Internet companies first started selling ads, they touted the Web's unique ability to measure their success by counting clicks and impressions. Now, Netizens have generally shown not only that they are reluctant to click on ads but also that they are not willing to have their surfing monitored or measured.

    In other words, advertisers who thought they found advertising nirvana on the Net, where everything could theoretically be calculated, are finding that they'll have to rethink the model.

    "Advertisers take the medium on faith with television, radio, and print, but not with the Web," Kinsman said. "Maybe the Web will never live up to expectations that marketers had about what it can tell you about your audience."

    Senior writer Tim Clark contributed to this report.