Online Ad Spending Declines 7.8% In First Half of 2001

In results that put concrete dollar figures on the pain the online advertising industry is experiencing, the Interactive Advertising Bureau and PricewaterhouseCoopers have released their latest numbers, which say that online ad spending declined 7.8 percent in the first half of 2001, to $3.76 billion, as compared to $4.08 billion during the same period last year.

The decrease is largely in line with the average losses being reported across advertising in all forms of media, which have been measured at 5.9 percent in a recent study from CMR, a Taylor Nelson Sofres company.

Although comparing figures from two different studies is scientifically shaky, it does provide some perspective on the numbers. At a 7.8 percent decline (as measured by IAB), interactive advertising comes in somewhere between daily newspapers, which fell 6.6 percent according to CMR, and Sunday newspapers, which CMR says went down 10.4 percent. Interactive appears to be faring better than national spot radio and spot TV, which declined 22.4 percent and 14.7 percent respectively, according to CMR.

Still, the numbers aren’t good, and they seem to be getting worse from quarter to quarter — and that isn’t even considering the impact of the September 11th attacks, which have caused industry leader DoubleClick to revise downward its expectations for third quarter earnings. In the first quarter, Internet advertising brought in $1.89 billion, and the second quarter spending came in at $1.87 billion. That’s a decline of $25 million from quarter to quarter.

However, the Interactive Advertising Bureau, which represents publishers and other sellers of online advertising, tried to put the numbers in perspective. “We believe the numbers we are reporting today must be viewed in the context of advertising overall,” said IAB president and chief executive officer Robin Webster. “While the declines are not insignificant, they are well within the parameters of the overall advertising industry’s experience and seen in perspective, they reflect our confidence in the long term value of the online medium.”

The IAB study also shed light on some occurrences within the world of interactive media. The revenue-rich are getting richer, as more dollars become concentrated in the hands of the biggest media companies. While 70 percent of revenues went to the top ten media companies in the first half of 2000, that number had grown to 76 percent in 2001. In the first two quarters of 2001, the top 25 media companies brought in 88 percent of the bucks, compared to 83 percent last year; and the top 50 media companies garnered 96 percent of overall industry revenues, as compared to 91 percent in 2000.

Despite anecdotal evidence to the contrary, CPM (cost-per-thousand impressions) deals actually seem to be gaining in popularity. In the first half of 2000, straight CPM deals accounted for 43 percent of revenue, and by the same period in 2001, that number had grown to 50 percent. Hybrid deals accounted for 47 percent of dollars in the first half of 2000, and only 40 percent in 2001. Straight performance deals stayed the same, at 10 percent.

“This is a healthy trend for the industry,” said Webster. “Pricing models based on the variables publishers control such as audience, space and editorial environment, are much more reliable than those which are outside the publisher’s control, such as the strength of the agency’s creative and/or the advertiser’s service or product.”

Barter deals, in which online ad space is traded for other goods or services, were up in the first half of 2001 compared to the previous year. Ninety percent of revenue transactions were cash-based during the period from January to June 2001, compared to 94 percent for the same time in 2000. Barter or trade accounted for 9 percent of revenues in the first half of this year, as compared with 5 percent for the first half of 2000.

The IAB study also found a trend away from banners, and an increase in areas like classified ads and keyword searches, although banners still accounted for the lion’s share of ad spending. Banners brought in 36 percent of ad dollars in the first half of 2001, as compared to 51 percent during the same time period in 2000. Classified ads jumped from 5 percent of revenues in the first half of 2000, to 15 percent in 2001; and keyword searches increased to 3 percent, up from 1 percent in the first half of 2000. Other categories, including e-mail, rich media, and sponsorships, stayed largely unchanged. This was the first year that the study looked at slotting fees — fees charged for premium ad placement and/or exclusivity — and it found that such deals accounted for 8 percent of total ad spending.

Despite the obvious difficulties the industry is going through — and will continue to go through — the IAB painted a positive picture of the first half of the year, citing changes such as new ad sizes, increased experimentation with rich media, the de-emphasis of click-through, and the implementation of branding-oriented research.

“This has been an important year for the Internet and online advertising. The Internet is recognized as a crucial source of information and usage is growing worldwide. During the past six months, IAB members have made impressive strides in developing new ways of advertising online, creating effective campaigns and measuring their success,” noted IAB chairman Shelby Bonnie. “Ours is a dynamic medium that, even in a slowing economy, has shown that it is gaining advertisers’ trust relative to other media.”

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