IAB: Web Ad Growth Up in 2005

NEW YORK 2005 was officially the best year in the history of Internet advertising.

As had been previously reported, Web ad revenue topped the $12 billion mark last year, according to finalized figures released today by the Internet Advertising Bureau and PricewaterhouseCoopers. Officially, spending in 2005 hit a record $12.5 billion, up a healthy 30 percent from the previous year.

While the year was strong throughout, it closed with a bang, as fourth-quarter revenue reached a record $3.6 billion, up 34 percent versus the same quarter in 2004. That figure is nearly $1.5 billion larger than the $2.1 billion in spending seen in the last days of the dot-com bubble, in fourth-quarter 2000.

The industry appeared to be hitting on all cylinders in 2005, as all segments showed strong growth. The still-hot search engine ad category accounted for 41 percent of dollars last year, while spending on display advertising, which includes banners, skyscrapers, sponsorships and the like, pulled in 34 percent of dollars. Spending on the more sophisticated rich media ad placements topped the $1 billion mark for the first time, representing 8 percent of expenditures.

“Interactive advertising continues to experience tremendous growth as marketers experience its overall effectiveness in building brands and delivering online and offline sales,” said IAB president and CEO Greg Stuart.

Interestingly, despite the wide open, serve-every-niche promise of the Internet, ad spending online is remarkably undiversified. According to the IAB report, 72 percent of 2005 ad dollars were allocated to the top 10 Web media companies—a figure that went unchanged compared to 2004. In fact, 86 percent of ad dollars were concentrated on the top 25 Web properties and 95 percent on the top 50.

Despite the robust growth, the Internet still has plenty of room for expansion as an ad medium. According to the report, Internet ad revenue accounted for approximately 4.7 percent of total U.S. ad spending in 2005, up from approximately 3.7 percent in 2004. The $12.5 billion spend level places the medium just behind consumer magazines, which hit $12.9 billion in 2005, based on PricewaterhouseCoopers estimates.