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Online Ad Revenue Sets Record

U.S. Internet advertising revenue approached $17 billion in 2006, a 35% gain over the prior year.

Internet advertising revenue in the U.S. set a new record in 2006, growing 35% to reach almost $17 billion, according to a report released by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers LLP (PwC).

Revenue for the fourth quarter of the year, $4.8 billion, also set a record and similarly showed a 35% increase compared to the fourth quarter of 2005.

Randall Rothenberg, president and CEO of the IAB, characterized the revenue growth as a sign that advertisers recognize the value of online advertising and said he expected the growth trend to continue.

Search advertising accounted for 40% of 2006 U.S. ad revenue ($6.76 billion), a slight decline from 41% in 2005. Display ads, classified ads, and referral ads accounted for 32%, 18%, and 8%, respectively, of revenue. Rich media (video) ads (included in the 32% display ad share) also showed a slight market share decline, dropping to 7% from 8% in 2005.

"What we haven't started to see yet is the promise of digital video," said Sheryl Draizen, SVP and general manager of the IAB. "Even though there's a lot of buzz around it, we're not seeing the dollars yet. But we anticipate that we will."

About three-quarters of the $6.76 billion in search ad revenue went to Google, according to an estimate issued last month by eMarketer. With its planned acquisition of DoubleClick, Google stands to gain an even greater share of the display ad market, which is second in size to search. Google's revenue worldwide last year was $10.6 billion, mostly from online advertising.

The booming online ad market has prompted power struggles between various ad industry organizations. Last month, Rothenberg in an open letter called for two leading Internet metrics firms, comScore and Nielsen/NetRatings, "to submit to a third-party audit of their measurement processes."

Rothenberg argued for better auditing because "our members' server logs continue to diverge starkly from your companies' sample-based assessments, by 2x to 3x magnitudes in some cases -- far beyond any legitimate margin of sampling error."

Draizen acknowledged that getting industry organizations on the same page in terms of ad performance metrics has become more pressing as online ad revenue has risen. "It's becoming more and more important because the dollars are flowing," she said.

On Tuesday, the IAB said that comScore and Nielsen/NetRatings, two of the largest interactive audience measurement companies, had committed to timetables for the auditing of their technologies and processes by a third-party auditor.

In an abrupt change of tone, Rothenberg in a statement yesterday called comScore and Nielsen/NetRatings "...the heroes of the interactive marketing and media ecosystem."

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