Originally created 05/25/04

Online advertising hits record in first quarter

NEW YORK - Internet advertising revenue reached about $2.3 billion in the first quarter, a record for a single quarter, in the latest sign the industry is poised this year to surpass its bubble-era peak.

The preliminary total, announced Monday by the Interactive Advertising Bureau and PricewaterhouseCoopers, was 4 percent higher than the fourth quarter's record revenue of $2.18 billion and up 39 percent from a year ago.

The quarter-over-quarter growth is particularly notable because fourth-quarter ad revenue typically gets a bump from pre-holiday advertising. Meanwhile, the sharp increase from a year earlier, when spending was in the doldrums, indicates the industry's growth rate this year may be even steeper than the 10 percent to 15 percent predicted by many analysts, said Greg Stuart, president of the IAB.

Even the higher forecasts of nearly 25 percent growth "might be a little bit low," Stuart said.

Annual online-ad revenue hit its peak in 2000, at $8.09 billion, according to the IAB, which has been tracking the industry since 1996. Last year's revenue was $7.27 billion.

Ads on search sites have driven the industry's recovery, with all other formats declining 7 percent in 2003 from the previous year. These simple text ads, which appear next to relevant Web searches and cost advertisers only when people click on them, have soared in popularity because they are easy to set up and effective at finding potential customers, advertisers say.

The IAB doesn't break out revenue by ad format in its preliminary results. Jupiter Research associate analyst Nate Elliott predicts that this year, "the entire industry is going to grow in harmony." He said that after the dot-com shakeout, "The players who are left are offering advertisers good stuff - strong audiences, powerful formats."

First-quarter results from major search players suggest that search advertising is still growing at a steady clip. Search giant Google Inc., which relies on such ads, saw advertising revenue jump 27 percent to $375.3 million from the fourth quarter. Similarly, marketing revenue for Yahoo Inc., which sells both search ads and display ads, rose 16 percent to $635 million sequentially.

The IAB and PricewaterhouseCoopers, both based in New York, compile preliminary ad-revenue figures based on surveying the top 15 online ad sellers and extrapolating from their results.


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