State of Local

Online advertising revenues exceeded $21.1 billion for the first time in 2007, according to a report based on research conducted by PricewaterhouseCoopers (PwC) and sponsored by the Interactive Advertising Bureau (IAB).

In the latest of their Internet Advertising Revenue reports, the two companies estimated that 2007’s figure will dwarf the $16.9 billion in online advertising revenue reported in 2006. That $5.2 billion increase of 25% percent year-to-year, which is both a record-setting dollar figure and a decline in growth rate compared to prior years.

Which is one of the things to keep in mind as you take a look at the news coverage of these numbers. There are a couple of ways to write the takeaway headline for the report. And while they’re both correct, it’s the perspective that really matters.

For Netimperative, the headline was that “US Online Ad Revenue Growth Slowed In 2007.”

This is less than the 35% percent and $4.3bn growth seen in 2006 over 2005, the IAB said. A slowing of revenue growth has long been predicted by industry analysts, as the Internet takes a larger share of advertising revenue away from traditional media such as TV and print.

But the ClickZ take is a bit more optimistic with the headline “Internet Ad Revenue Exceeds $21B in 2007.”

In the final quarter of the year, those companies forked over about $5.9 billion, the biggest quarterly number ever reported by the IAB and PwC, and a 13 percent increase over third quarter of 2007. The $5.9 billion figure represents an increase of 24 percent over the fourth quarter of 2006, according to the report. The IAB and PwC noted that Internet ad revenues for the each of the four financial quarters of 2007 were record-busters.

In a statement, PwC partner David Silverman said the $21.1 billion year for interactive advertising “is the culmination of consecutive record quarters throughout 2007.”The IAB said final data and breakdowns by ad types would be available in May, and those details will really tell the final tale on 2007.

Typically, the most profitable segment of the online advertising market is in keyword ads, like the ones seen in Google AdSense.While that’s likely to still be the case in 2007, there are increasing challenges in that sector. Google’s share priced dipped this week, primarily because of an expected dip in keyword-based ad revenue.

So what should you take away from this report? Online advertising is certainly the place to be overall. Generally speaking, online advertising is going to continue to take revenue away from other advertising options, although growth overall will slow as the easiest advertisers to convert move their money online.

But it also seems important not to focus on any one aspect of online advertising. Growth brings volatility, and the best approach is to have a wide-ranging basket of options for advertisers. As the online advertising revenue share increases, advertisers will insist on better metrics and more flexibility in their options. And some of the current hot spots of the online ad market will face increasing challenges.

Which might explain Microsoft’s announcement yesterday that it is rolling out an ad performance metric called “engagement measurement.”

“The ‘last ad clicked’ is an outdated and flawed approach because it essentially ignores all prior interactions the consumer has with a marketer’s message,” said Brian McAndrews, senior VP of the advertiser and publisher solutions division at Microsoft, in a statement. “Our Engagement Mapping approach conveys how each ad exposure — whether display, rich media or search, seen multiple times on multiple sites and across many channels — influenced an eventual purchase. We believe it represents a quantum leap for advertisers and publishers who are seeking to maximize their online spends.”

Another development to watch is Yahoo’s new advertising system called Apex (for Advertiser Publisher Exchange). Jerry Yang and Sue Decker of Yahoo presented the idea at the Interactive Advertising Bureau’s convention on Monday, and while the specific details are a bit sketchy, Apex seems to be Yahoo’s attempt to combine ad serving technology and behavioral targeting into a platform which would work across any platform, or with any type of ad.

All 600 newspapers that have signed onto Yahoo’s new newspaper consortium have agreed to move over to Yahoo’s new ad system. The promise of this system is that a local advertiser could buy an ad that runs on the local newspaper, as well as to other people on Yahoo’s extended ad network that the company can identify as living in that specific locale.

So the headline is that online advertising revenue is going to keep growing. But what the sector looks like even two years from now is anybody’s guess.