Online advertising undergoes 'tremendous' growth

Internet advertising in the U.S. grew 30 percent in 2005, although it still remains a small portion of overall ad spending, according to a study released Thursday.

Internet advertising reached US$12.5 billion in 2005, up from $9.6 billion in 2004, a growth rate described in a statement as "tremendous" by the Interactive Advertising Bureau (IAB), which commissioned the study conducted by PricewaterhouseCoopers (PWC).

The IAB and PWC attributed the growth to the increasing effectiveness of online ads, which offer a variety of options for advertisers to market their products and services.

Still, Internet advertising made up only 4.7 percent of total ad spending in the U.S. in 2005. While this is an improvement over 2004, when Internet ads accounted for 3.7 percent of the overall market, it's still small compared with other ad segments, such as direct mail ($56.6 billion), newspapers ($47.9 billion) and broadcast and syndicated television ($35 billion).

Within Internet advertising, the most-used format, with 41 percent of the pie, was search, in which advertisers pay online companies to display a text ad with a link to their Web sites based on a keyword or phrase entered on a search engine or included on a Web page. This format's biggest players include Google Inc. and Yahoo Inc. and has categories such as paid listings, contextual search and paid inclusion.

Display advertising, such as banner ads, came in a distant second with 20 percent of 2005 revenue, followed by classifieds with 17 percent.

The study, titled "Internet Advertising Revenue Report," is available at http://www.iab.net/resources/ad_revenue.asp.