The recent IAB/PricewaterhouseCoopers report shows record revenue for interactive marketing, with search still leading the way.

Stats released late last month indicate that the final quarter of 2004 reaped the highest revenue for online advertising -- ever.

The Internet Advertising Revenue Report, compiled by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC), reveals that overall industry revenues in 2004 rose nearly 33 percent over 2003, totaling more than $9.6 billion and exceeding the previous revenue record in 2000 by nearly 20 percent. Q4 2004 revenues totaled a record $2.69 billion, marking the highest quarter ever reported.

The two firms report that revenues have increased eight of the previous nine quarters. Total revenues for the 2004 fourth quarter increased over 15 percent from the 2004 third-quarter total of $2.33 billion, and just under 24 percent from the 2003 fourth-quarter total of $2.18 billion.

"Interactive advertising has clearly become a mainstream medium and one that can no longer be ignored as a critical piece of any marketing mix,” says Greg Stuart, president and CEO of the IAB.

Adds Pete Petrusky, director, advisory services, PricewaterhouseCoopers: “The revenue results reported for 2004 confirm a very healthy environment for online advertising, for both direct marketers seeking immediate performance results, as well as brand advertisers looking to create or enhance an image, product or service."

Paid search rakes in the most

The report states that search, classifieds, display and rich media continue to grow at a healthy rate, with search remaining the largest revenue format, accounting for 40 percent of 2004 fourth-quarter revenues. Search advertising revenues totaled $1,078 million in the fourth quarter of 2004, up 23 percent from the fourth quarter of 2003, when search revenues totaled $873 million.

Display advertising accounted for 18 percent of total revenues during the fourth quarter of 2004, down slightly from the 20 percent reported in the fourth quarter of 2003. On a total dollar basis, display advertising totaled $485 million in 2004 Q4, up nearly 11 percent from the $436 million reported in the fourth quarter of 2003. This represents a solid rebound from the 12 percent full-year decline reported in 2003 versus 2002.

Classifieds revenue accounted for 18 percent ($485 million) of 2004 fourth-quarter revenues, up slightly from the 16 percent ($349 million) reported in the fourth quarter of 2003.

“The PwC 2004-reported figures indicate that interactive is firing on all cylinders including display, search and classifieds and is squarely on track to surpass consumer magazine revenues,” says Stuart.

Rich media accounted for 11 percent ($296 million) of fourth-quarter 2004 revenues, up 36 percent from the same period reported for 2003 ($218 million).

“The increased adoption of broadband will continue to evolve the face of interactive advertising as more compelling media ads and video formats are created,” notes Tom Hyland, partner, PricewaterhouseCoopers. “More and more, brand marketers will look to interactive as an integral platform to deliver rich experiences for brand building and enhancement.”

Adds Tom Hyland, partner, Pricewaterhouse Coopers: “With the considerable increase of broadband within the home, more consumers are spending more time online accessing content and affecting transactions. This key trend is not lost on marketers, particularly the larger offline brand advertisers which realize the medium’s improved infrastructure affords advertisers a stronger platform to deliver more rich and compelling advertising experiences essential for brand building and enhancement.”

Ad Formats - Internet ad revenues broken down by ad formats for the 2004 full year revenue are:

Consumer advertisers lead the way

Consumer advertisers continue to represent the largest category of advertisers accounting for 49 percent of the 2004 annual revenues, up significantly from the 37 percent reported for the same period in 2003. The largest sub-categories under the consumer umbrella include retail, automotive, leisure, entertainment and packaged goods.

As a percent of 2004 total revenues, computing and financial services account for 18 percent and 17 percent respectively, with telecommunications and pharmaceutical & healthcare rounding out the total at four percent and six percent respectively.

Ad Categories – In 2004, consumer advertisers continued to lead the way in online advertising spending accounting for 49% of total revenues. The top five in this segment are:

Performance-based pricing remains strong

Survey participants reported 46 percent of 2004 fourth-quarter revenues were priced on a performance basis (e.g., cost-per-click, sale, lead or straight revenue share), up from 41 percent for the same period in 2003. Approximately 38 percent of 2004 fourth-quarter revenues were priced on a CPM or impression basis (includes sponsorships), down slightly from 40 percent reported for the fourth quarter of 2003, while approximately 16 percent of 2004 fourth-quarter revenues were priced on a hybrid basis, declining from the 19 percent reported for the same period in 2003.

"The internet is the only medium to adopt a global standard for impression measurement, intended to simplify the buying and selling process for online advertising,” says Petrusky.

Pricing Models – While CPM pricing continues to be the predominant choice for buyers and sellers, growth in performance-based deals continued in 2004.

Additional resources:

A copy of the full report is available for download at http://www.iab.net/2004adrevenues.