Is the Online Ad Market Ready to Rebound?

While online advertising is still far from what it was during the devil-may-care dotcom heyday, the battered market is starting to show signs of modest growth, according to a recent study released by the Interactive Advertising Bureau.

U.S. Internet ad revenue grew 1 percent in the third quarter of 2002 over the previous quarter, bringing in $1.47 billion, and representing the first sign of positive growth in the industry for six quarters, the IAB said.

Although Internet advertising revenue was down 18 percent year-over-year in the third quarter of this year, it was still an improvement over the 21.9 percent year-over-year decrease in revenue reported for the second quarter of 2002, the group said.

Modest Gains

The New York-based advertising association, which counts as its members Microsoft, America Online, and Yahoo, sponsored the study which was independently conducted by the New Media Group of PricewaterhouseCoopers.

In compiling the study, PwC reported the first and third quarters of the current year as estimates based on data collected from the top 15 online ad sellers, which it says historically count for 80 percent of industry revenues.

"While we are reporting a modest gain, quarter to quarter, the reality is that the growth in the interactive advertising sector, as demonstrated by the top 15 sellers, is much stronger than is reflected in this report," said Greg Stuart, IAB president and chief executive officer in a statement.

"We know there are more companies out there with positive growth," he said, adding that the study is a reflection of the industry as a whole, not just the large players.

Paid search and classified services are leading the pack in terms of drumming up revenue, according to Pete Petrusky, director of the New Media Group at PwC, in a telephone interview Friday from an airport where he was waiting for a flight.

Pure content sites are also doing well, Petrusky said, because they are better at leveraging traffic and generating multiple revenue streams that enable them to weather the downturn.

Ending on an Upswing

Since the fourth quarter of the year is traditionally a strong period for advertising, given the holiday season and year-end sales, PwC predicted that online ad revenue would continue to grow in this quarter.

"I think the fourth quarter is going to be fairly strong. We will end the year on an upswing," Petrusky said.

"The economy is starting to pick up and you can't ignore the growth in online usage ... advertisers follow the eyeballs," he added.

But despite optimistic forecasts, many online companies have already prepared for a prolonged ad drought, cutting costs and jobs while attempting to diversify revenue streams through introducing new pay services and other efforts.

Yahoo, for example, recently rolled out premium e-mail services and Web hosting for small businesses.

While an uptick in online ad revenue is good news, most online companies will most likely be cautious until the tumultuous market calms.