April 25, 2006, 12:00 AM

Retailers make up the bulk of online advertising, which grew 30% in 2005

U.S. Internet advertising revenue in 2005 grew 30% over 2004, reports The Interactive Advertising Bureau and PricewaterhouseCoopers. Consumer advertisers accounted for 51% of spending, with retailers accounting for 49% of all consumer advertising.

Kurt Peters

Executive Editor

U.S. Internet advertising revenue in 2005 grew 30% over 2004, reaching $12.5 billion, reports The Interactive Advertising Bureau and PricewaterhouseCoopers. The organizations’ Internet Advertising Revenue Report tracks spending on search, classifieds, display, and rich media ads.

Q4 2005 Internet advertising revenue totaled $3.6 billion, up 34% over the same period in 2004.

Consumer advertisers drive online advertising, with retailers the largest spenders among consumer advertisers, the report says. Consumer advertisers accounted for 51% of 2005 online spending, up from 49% in 2004. Retailers accounted for 49% of all consumer advertising spending, up from 47% a year earlier. Other significant components of consumer advertising were automotive (20%), leisure (14%) and entertainment (10%).

Highlights of the report include:
• Search advertising continues to dominates online marketing, accounting for 41% of all online ad spending in 2005 vs. 39% in 2004.
• Spending on referrals/lead generation advertising, including affiliate marketing sites, grew significantly last year to $753 million from $193 million the year before, accounting for 6% of online ad spending vs. 2% a year earlier.
• Display advertising experienced slippage in market share in 2005, accounting for 34% of spending ($4.2 billion) from 39% ($3.7 billion) the year before.
• E-mail marketing doubled its market share from 1% to 2%, with spending reaching $251 million in 2005 from $96 million in 2004.
• Online classified advertising’s market share remained virtually unchanged: 17% in 2005 ($2.1 billion) vs. 18% in 2004 ($1.7 billion).

In spite of all the hype surrounding pay-for-performance advertising, cost-per-thousand-impressions advertising increased its share of spending by a significant amount, accounting for 46% of online ad dollars in 2005 ($5.8 billion) vs. 42% in 2004 ($4 billion).

Online advertising ranks No. 7 among advertising media. The top media are: 1. Direct mail, $56.6 billion 2. Newspapers, $47.9 billion 3. Broadcast and syndicated TV, $35 billion 4. Radio, $21.7 billion 5. Cable TV, $18.7 billion 6. Consumer magazines, $12.9 billion 7. Online, $12.4 billion 8. Business magazines, $7.8 billion 9. Outdoor, $6.2 billion.

The IAB has been sponsoring the Internet Advertising Revenue Report since 1996. The survey is conducted independently by PricewaterhouseCoopers’ New Media Group. It represents data from all companies that report meaningful online advertising revenues


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