Study: Online Ad Spending Jumped to $1.2 Billion in 3Q 1999

Spending on online advertising rose to $1.2 billion in the third quarter of
1999, putting the industry on track for a $4.4 billion dollar year,
according to a new report conducted by PriceWaterhouseCoopers for
the Internet Advertising Bureau.

The $1.2 billion figure is up 30 percent from the second quarter of 1999,
and up 148 percent from the same period in 1998. In fact, the total revenue
number for 1998 was only $1.9 billion.

“This is really a blowout quarter that sets the stage for a blowout year,”
says Rich LeFurgy, chairman of the IAB and general partner at Walden VC, noting that a $4.4 billion
year would far exceed analysts’ expectations for the industry.

Banners still rule when it comes to revenues, despite numerous “beyond the
banner” efforts, accounting for 55 percent of third quarter numbers.
Sponsorships were next, with 27 percent. Interstitials came in at four
percent, e-mails doubled to two percent, from one percent. And the “other”
category, which includes rich media, classified, keyword buys, and referral
fees, brought in 12 percent of revenues.

“Banners are still the bedrock of the Internet advertising economy, along
with sponsorships,” said LeFurgy.

The report also found that the overwhelming majority of deals are being
done on a cash basis, despite attention being paid to barter and package
agreements. Ninety-four percent of the third quarter transactions were cash
deals, five percent were barters, and one percent were package, or
cross-media deals. These percentages weren’t substantially changed from
earlier quarters.

Who was doing the advertising? Consumer related spending was the big cash
cow, accounting for 32 percent of all revenues. Computer-related buys came
in at 21 percent; financial services was next at 19 percent;
telecom-related services drew six percent of dollars spent; and business
services were next with five percent.

The top ten media companies are still attracting most of the dollars,
too around 72 percent of revenue, up from 70 percent a year ago.

A hybrid of the CPM and performance-based pricing model was the most
popular in the third quarter, accounting for 55 percent of deals. Next came
straight CPM deals, with 37 percent. Straight performance deals came in at
eight percent, which was up slightly from earlier periods.

All in all, the third quarter cemented the idea that Internet advertising
is here to stay, it’s growing, and marketers are increasingly including it
in their media mix.

“This first billion dollar quarter signals that the industry’s growth shows
no signs of slowing down. Such robust growth is important because online
advertising is key to many online business models including the support of
free content and services, and subsidizing e-commerce,” says LeFurgy.

The Advertising Revenue Report, conducted by the New Media Group of
PricewaterhouseCoopers, was started by the IAB in 1996 and represents data
gathered directly from more than 200 companies representing over 1500 Web

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