Online Ad Market Shows Signs of Turnaround
By Stephanie Miles, Of The Wall Street Journal Online

NEW YORK -- The Internet advertising market, which has been in a slump for two years, may be turning a corner, according to new figures released Thursday from an industry trade group.
Online advertising revenue, which includes banner ads, search and classified listings, and pop-up and pop-under ads, totaled an estimated $1.47 billion for the third quarter of 2002, edging up from $1.46 billion in the second quarter of 2002.

The increase, although tiny, is the first sign of growth in six quarters, according to the Internet Advertising Bureau (www.iab.net), an industry trade group. The long-running online ad slump has prompted many online publishers -- such as iVillage Inc. (NasdaqNM:IVIL - News) , MarketWatch and Salon Media Group Inc. -- to explore other nonadvertising-dependent revenue streams, such as subscription fees and premium content.

The report, which is conducted by consulting firm PricewaterhouseCoopers for the IAB, is only an estimate based on revenue surveys of the 15 largest online advertising and content companies, which aren't disclosed. Final revenue figures are only made available for the second and fourth quarters of the year, according to PricewaterhouseCoopers.

Any recovery is slight, to say the least. Online ad sales for the third quarter were still down 18% from $1.79 billion in the same period last year. However, that figure is somewhat misleading, because nine of the 15 companies showed an average of 66% year-over-year growth, while the others lagged badly, according to Pete Petrusky, director of new media for PricewaterhouseCoopers.

"There's a few huge companies that had a drag on the entire industry," Mr. Petrusky said.

IAB didn't disclose how individual companies in its survey performed. But one of the biggest online publishers, AOL Time Warner Inc.'s America Online unit, has seen online-advertising sales deteriorate sharply in the past year. The division warned earlier this month that ad and commerce revenue would decline 40% to 50% next year to as low as $1.5 billion, on top of an expected decline of as much as 42% this year.

Other companies fared better. For instance, Yahoo Inc. (NasdaqNM:YHOO - News) saw ad revenue grow, helped by pay-for-placement search-engine ads. Its marketing-services revenue, which largely represents advertising, rose 22% to $147.4 million from $ 120.7 million a year earlier.

Although the survey didn't include specific figures for individual ad formats, Petrusky said that paid-search and classified listings from companies like Google Inc. (www.google.com) and Overture Services Inc. (NasdaqNM:OVER - News) are doing particularly well. Pop-up and pop-under ads seem to be on the wane, he said, driven by announcements from companies like iVillage and AOL, who both said this year they will limit the use of such ads on their services.

"It's not to say [pop-up advertising] was a failed experiment," he said. "It's just that they're constantly experimenting with different types of formats."

From early indications, fourth-quarter ad sales will continue the momentum, he said, noting that the holiday period historically sees higher sales than other quarters. "I expect to see an as-good or better fourth quarter," Mr. Petrusky said. "I think the year will end on a high note."