US online ad revenue hit $21.2B in 2007

Ad spending grew 26 percent

US online ad spending increased 26 percent in 2007 over 2006, as the Google-dominated search format not only remained the market's largest, but also increased its share of the overall pie.

Online ad spending in the US reached US$21.2 billion last year. Search advertising accounted for 41 percent of the spending, one percentage point more than in 2006, the Interactive Advertising Bureau reported on Thursday. In 2007, spending in search advertising grew 30 percent over 2006, explaining the continued financial success of Google, which broadly dominates this format.

It also partly explains Microsoft's continued sense of urgency at trying to boost its underperforming Internet ad business, which hasn't been able to achieve its financial and usage goals, specifically in search advertising, despite heavy investments in recent years. Microsoft cited its desire to compete better against Google as a key incentive in its attempt to acquire Yahoo, an effort that Microsoft has, at least for now, given up on.

Display advertising, which includes formats like banners, sponsorships and video, accounted for 34 percent of the spending, according to the IAB. This is a category in which, according to IDC, Yahoo leads and Google has a minor position. The third-largest format was classifieds, with 16 percent.

"The big story here is that despite the economic uncertainty, the record year of 2007 topped the former record year of 2006 by 26 percent," said David Doty, the IAB's Thought Leadership senior vice president. "This reinforces that it's an effective and accountable [advertising] medium."

While search advertising continues to be a phenomenon, as the overall revenue pie grows, new formats are emerging as promising ones, such as video, whose growth earned it for the first time its own subcategory in the 2007 report, Doty said. Video accounted for 2 percent, or US$324 million, of overall online ad spending.

A majority of the spending -- 55 percent -- came from companies advertising products and services for consumers, such as retail, automotive, leisure and entertainment companies. Providers of financial services made up the second-largest category with 15 percent of the spending.

In 2007's third quarter, spending reached almost US$5.3 billion, and in the fourth quarter it almost hit $6 billion, according to the IAB.

The 10 largest online ad sellers racked up almost 70 percent of the spending, while the top 50 captured 89 percent.

The report measures spending by advertisers on Web sites published in the US.

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