2010 A Banner Year for Online Ads, But Display Pricing Still Weak

Record Revenue Year Buoyed by 18 Percent Growth in Second Half

The online advertising market roared back to life in 2010, setting a slew of records including the largest revenue year ever recorded and biggest quarter in the medium’s history, according to new figures released by the Interactive Advertising Bureau and PricewaterhouseCoopers. But those figures also revealed some cracks in the Internet’s growing strength as an ad medium; brand advertising still lags behind direct response advertising on the Web. And while spending on display advertising has increased sharply, pricing has not.

Overall, 2010 was a banner year for the Web. Ad revenue soared by 15 percent to a record $26 billion during a period when most other media saw single digit growth.

The second half of the year was even more impressive, as revenue climbed 18 percent to $13.9 billion, also a record. And the fourth quarter was particularly monstrous, as ad spending exceeded $7 billion for the first time ($7.5 billion).

Those numbers, and the fact that the past five quarters have exhibited year-over-year increases, provide “further evidence for why I think we’re out of the woods,” said Sherrill Mane of the IAB’s industry services group. “The market is even healthier looking than the recovery that happened in 2003.”

Digging inside the strong overall online ad numbers, certain sectors stand out. Digital video advertising remains hot, as spending surged 40 percent in 2010.

And while search spending still dominates in terms of share, display advertising—which took a beating in 2009—bounced back nicely. Spending on pure sponsorships soared by 88 percent (albeit from a small base) while spending on old school banners jumped by 23 percent.

“We saw reinvestment in a category that had been down,” said David Silverman, partner, PwC, who called the growth rate for sponsorships “astounding.”

Silverman, however, also noted that even during a recovery year when brands were supposedly coming back to the Web in a big way, “there was a trend toward performance based advertising,” he said. In fact, performance-based spending made up 62 percent of online ad revenue in 2010.

A chunk of those display dollars are likely driven by the continued overabundance of online ad inventory—something the recovery hasn’t changed. Display ad inventory is still cheap, allowing performance-based ad networks and exchanges to thrive.

Added Mane: “In aggregate, CPMs are not going up. If anything they are flat to a bit down.”

IAB/PwC also released its first mobile spending numbers. According to the report, mobile ad revenue landed somewhere between $550 and $650 million in 2010.