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Online advertising slows
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October 5, 2000: 3:56 p.m. ET
Online ad revenue stalls, dollars spent on just a few companies
By James Christie
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SAN FRANCISCO (www.redherring.com) - The short-term growth of Web site advertising revenue is slowing, which is hardly what Web site operators struggling to sell ads need. And worse for dot.com laggards, online ad dollars are increasingly being spent on a handful of Web companies.
Online ad revenue grew 8.8 percent in the second quarter from the first quarter, according to PricewaterhouseCoopers, which covers online ad growth for the Internet Advertising Bureau trade group. This year's second-quarter gain is less than first quarter's 9.9 percent rise. Additionally, both quarterly gains are meager compared to the 46 percent jump posted in fourth-quarter 1999.
While struggling dot.coms have cause to worry about the near-term trend for ad revenue, dot.coms with resources for the long term need not panic. Their outlook for more ad revenue, especially if they're a well-known Web brand, is good, because online ad revenue is posting "robust" year-over-year results, said Tom Hyland, chair of PricewaterhouseCoopers' New Media Group.
For instance, online ad revenue in the second quarter rose 127 percent from the same period a year ago, Mr. Hyland said. He adds that such triple-digit growth will help Internet ad revenue near an important benchmark: the ad revenue of cable television.
"Cable television is more of a recognized medium and a very good advertising vehicle. It took it a long time to be recognized as such. Internet advertising is getting there faster," Mr. Hyland said.
Ad dollars keep rolling along
Despite a short-term cooling in ad revenue growth rates, Web sites' ad revenues in dollar terms are healthy: $2.12 billion in the second quarter, up from $1.95 billion in the first quarter and $934 million a year earlier.
<-[if gte vml 1]>  Advertisers continue to pay for space on Web sites. And advertisers' cash is expected to add up fast as the holiday shopping season sets in. A seasonal rush of ad dollars to Web sites will help drive 2000 online ad revenue close to $10 billion, or just under the $11 billion spent on cable television advertising last year, according to Mr. Hyland.
"We've seen $4.1 billion in online advertising through June 30. Last year at this point, we saw $1.7 billion," Mr. Hyland said. "When you're looking at a U.S. advertising market in the high $200 billion to $300 billion range, Internet advertising is a small part of the overall market, but it's continuing to grow."
Mr. Hyland also noted online ad revenue is growing at a faster clip than ad revenue in either network or cable television during their formative years. He cited a PricewaterhouseCoopers study of each medium's early years.
The study shows that, "if you look at year five of broadcast television's life, 1953, and adjust for inflation, television had $3.6 billion in advertising. In year five of cable television, 1984, it had $1.1 billion worth of advertising. In year five for the Internet, 1999, it had $4.6 billion in advertising," Mr. Hyland said.
The bigger they are, the bigger they stay
Despite Mr. Hyland's upbeat assessment of Internet advertising's long-term growth, he noted online ad dollars are increasingly being concentrated. For example, ten Web site operators in the second quarter earned 71 percent of all online ad revenue, up from 69 percent in the first quarter. Also, 91 percent of online ad revenue goes to the 50 leading Web sites.
"The weaker players will have difficulty," Mr. Hyland said. "The stronger players will garner more and more of the audience. That concentration will continue."
Meanwhile, the form of online advertising is changing. "Banner ads are down slightly," Mr. Hyland said. "In the second quarter of 1999, banner ads represented 59 percent of all online ads. In the first quarter of this year, they represented 52 percent. In the second quarter, they represented 50 percent."
"Now, classifieds are an area of interest for advertisers," he added. "In the second quarter of 1999, we didn't even have a metric for online classified ads. In the first quarter of 2000, classifieds were 4 percent. In the second quarter, they were 7 percent."
Web sites that depend on advertising as a significant part of their revenue will need to keep in mind the stratification of cash in banner ads, and may want to widen their view of how to keep the revenue rolling in.
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