NEW MEDIA: Spotlight On - Internet Revenue. Is year-on-year growth cause for optimism for web media? Online didn't suffer the fate of traditional media during recession

People in the online media business have always been prickly on the subject of revenue figures. And can you blame them? The mainstream advertising industry usually gets the wrong end of the stick where internet advertising revenues are concerned - usually to the detriment of the medium. It doesn't make the job of selling it any easier.

The classic confusion is to get the notion of the internet as an advertising medium all muddled up with the dotcom phenomenon. In other words, believing that the former is as much a Wild West-sort of boom-bust business as the latter was.

And the second misconception (closely related to the first, obviously) is that revenues fell off a cliff some time after the summer of 2000 and have remained at rock bottom ever since.

Not true. Revenues didn't fall off a cliff. And while the revenue graph hasn't exactly been a smoothly rising curve throughout the recession, online advertising certainly hasn't experienced the revenues setbacks recorded by other major media.

All of which will be revealed by even the briefest perusal of the latest online revenue report compiled by PricewaterhouseCoopers and published courtesy of the Internet Advertising Bureau. Its bottom line is that while most media slipped backward last year, the internet grew by 7.1 per cent year on year, taking a total of £165.7 million in UK ad revenues.

Cause for optimism as regards the future of online advertising? After all, some forecasters had been predicting that the figures would be even more impressive. Danny Meadows-Klue, the chairman and chief executive of the IAB, says the market should be pleased with what it's got - steady growth built on solid underlying trends. He states: "Clearly this is significant growth and there's a mood of quiet confidence because it's based on growth in investment by established brands working to a broad range of marketing objectives. Three years ago, revenue was driven by dotcom business, most of which was in customer acquisition mode. Now there's a far more mature understanding of the way in which online advertising works. And if the UK market continues to follow what happens in the US market, this is clearly a trend that will continue."

The medium's reach and audience continues to forge ahead. And partly as a consequence, it's clearly becoming a more mainstream advertising medium. The fact that Volvo chose to launch a new model online is hailed by many as another milestone for the sector, for instance.

Matt Whittingham, the group marketing manager of MSN, says it's clear that big brands are now looking more consistently at the internet. He states: "There are real causes for optimism as regards the FMCG, finance and automotive markets. What we've been seeing is that as one key player in a particular sector goes online the others want to put a toe in the water too. Also it's becoming accepted that online drives a multitude of brand metrics - and we, in particular, plan to produce more research on brand effectiveness. The next phase is to be able to help optimise levels of online activity within advertisers' marketing plans."

One criticism in the past has been that the medium is dominated by a mere handful of players. Traditionally, about 85 per cent of revenues are taken by the top ten and actually the market is pretty much dominated by the top three - MSN, Yahoo! and AOL.

Is this a perception problem for the industry? Surely it will continue to be cited as evidence of the immaturity of the market. Not so, Whittingham responds. He says it's something that advertisers will welcome. "There is still room for plenty of niche players. But think back 15 years or so - brand marketers loved ITV. They loved the fact they could reach vast numbers of their customers with one spot on Coronation Street. It's far more complex - and expensive - now the TV market has fragmented. Similarly, it's in advertisers' interests that a campaign on MSN will reach 60 per cent of the (UK's total) online population."

Robert Horler, the managing director of Carat Interactive, tends to agree that the numbers should be greeted with cautious optimism. He feels that the industry can look forward to continued solid progress. "The sector has been around for a good number of years now and you can no longer expect it to grow exponentially. It's more realistic now to expect organic growth.

The FMCG sector is still the big thing missing from the online advertising CV and there's work to do in convincing advertisers of the branding effect you can achieve online. They were the people who had their fingers badly burned before. But even the people who work to a strong direct response medium are beginning to understand the branding effect."

Caroline Pathy, the advertising sales director of Freeserve, agrees that the internet is continuing to advance its sales case across several fronts: "Banks and travel use the internet as a distribution mechanism, so the internet delivers the ultimate in point-of-sale advertising.

But it's also becoming increasingly important for major brands which are not looking to be online retailers - it can build brand awareness and increase brand loyalty. There's a danger we can start to come across as a Jack of all trades. That's why we need to work at helping advertisers and brands understand what the internet can do and focus on what they should be trying to get out of it."

And Martina King, the managing director of Yahoo!, would certainly agree that this is the next challenge. "We have to work intelligently with creative agencies to make sure they can use the medium creatively, she states.

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