Internet advertising still a growth business, but pace slows

Internet ad revenue may have reached $17 billion in the first half of the year, according to the Interactive Advertising Bureau, but the rate of growth declined between 2011 and 2012.

In a Thursday report, the industry association said online ad revenue in 2012 climbed 14 percent, from $14.9 billion in the first six months of 2011. But between the first half 2010 and the first half of 2011, revenue increased 23 percent, indicating softening growth.

When asked about the slowdown, research executives at the IAB and PwC (which conducted the study for the association) mostly attributed it to the overall macroeconomic picture. In 2010, the economy was particularly weak, making growth in 2011 look especially strong. And uncertainty in the current economy could be dragging down spending this year.

David Silverman, a partner at PwC US, also said the appearance of a declining rate of growth could be a function of the growing industry.

“As your base gets bigger, your dollar growth can be higher but as a percentage it looks smaller. That’s just going to be a natural phenomenon that will happen over time as the base continues to grow,” he said.

According to the report, mobile continues to be a big gainer, with spending nearly doubling from $636 million in the first half of 2011 to $1.2 billion in the same period this year.  But though it’s seen as a new revenue source and diver of overall growth it remains a relatively small piece (7 percent) of the overall online ad spending pie. Among all categories of online advertising, search leads with 48 percent of the spending ($8.1 billion), followed by display with 33 percent ($5.6 billion).

Rich media saw a 32 percent decrease, the researchers said, but explained that spending in that category is moving to digital video, which rose 18 percent but remained flat year over year.

Another interesting finding from the IAB report was that brand dollars are moving online at a slightly slower pace compared to previous half-year reports. But Sherill Mane, the IAB’s SVP for research, analytics and measurement, said that while performance-based advertising (in which payment is based on a direct response) seems to be currently outpacing brand advertising (which is based on impressions), dollars for the latter type of advertising are continuing to come online.

While the IAB continues to tout the health of the online ad market – and cite the strength of its growth relative to that of other mediums – the majority of ad dollars are still spent offline. Online publishers and platforms are making headway with new ad formats that deliver increasingly premium experiences, but they’re just beginning to show that they can offer measurable results.

As for advertiser categories, the report said spending by pharma and healthcare was up 81 percent to $1.1 billion in 2012 and automotive climbed 29 percent. Consumer packaged goods grew by just 4 percent but though that number seems small relative to the big gains in other categories, the researchers said it’s a solid number for a tough economy.

Image by  Tribalium via Shutterstock.