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Internet Search Sites Win Bulk Of Online Ad Spending

As the popularity of online search grows, 40% of online ad budgets are spent there.
Spending on Internet search ads is approaching $1 billon a quarter, representing $4 of every $10 spent on online advertisements, according to a report issued Monday by the Interactive Advertising Bureau and PricewaterhouseCoopers. Advertisers allotted 40% of their online ad budgets--or $947 million--to search ads in the April to June period. That's up from $481 million in second quarter 2003, which then represented 29% of online ad budgets.

"Not surprisingly, search continues its popularity, and it's been embraced by advertisers due to its innate relevancy, the simplicity of the results, and because advertisers can determine more precise response rates," Pete Petrusky, director of new media at PricewaterhouseCoopers, said in a statement.

Advertisers spent a record $2.37 billion on Internet ads in the second quarter, up 43% from the same period a year earlier, the Interactive Advertising Bureau said Monday. That's up from $2.27 billion spent on Internet ads in the first quarter. Online spending is fueled by recent announcements by major advertisers that the Internet is getting a bigger chunk of their overall ad budgets, says Interactive Advertising's president, Greg Stuart. Ford Motor Co.'s Lincoln Mercury division and broadband provider Vonage have said that online will represent about 25% and 50%, respectively, of their advertising budgets, Stuart says. "Internet advertising is without question taking share from the other media at this time and for good reason--marketers have figured out that online advertising is often the most cost-effective medium for influencing both branding and sales results."

Here's how online ad spending broke down in the second quarter (second-quarter 2003 figures in parentheses):

  • Search: $974 million, 40% of online ad spending ($481 million, 29%)
  • Display ads: $474 million, 20% ($382 million, 23%)
  • Classifieds: $403 million, 17% ($282 million, 7%)
  • Sponsorships, $213 million, 9% ($199 million, 12%)
  • Rich media: $189 million, 8% ($149 million, 9%)
  • E-mail: $47 million, 2% ($66 million, 4%)
  • Referrals: $47 million, 2% ($17 million, 1%)
  • Slotting fees: $47 million, 2% ($83 million, 5%)

The industry has been experimenting with different formats, and though search is now king, Internet advertising will evolve, says Tom Hyland, PricewaterhouseCoopers' New Media Group chairman. "As broadband begins to reach critical mass in the home, we think the number of traditional advertisers with branding objectives will further increase as it provides a better platform for more compelling media ads and video formats."