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The IAB (Internet Advertising Bureau) released its report for the Internet advertising expenditures for the first half of 2011 which totaled nearly $15B. According the report released today by the IAB in conjunction with PricewaterhouseCoopers(PwC US), “The rate of growth more than doubled year-over-year, as last year’s first-half ad revenues of $12.1 billion had represented an 11.3 percent increase over 2009.”

Internet Advertising H1 Spend over the last 15 years

As you can see from the figure below, Internet advertising spend has continued to climb steadily in the first half of each of the last 15 years as measured and tracked by the IAB.

Internet advertising spend by H1 year as repoprted by IAB PwC 1996-2011

One of the Interesting things to note from the is the rapid acceleration of growth of Internet advertising from the H1 2010 to H1 2011 based on this latest IAB report. This can be seen in the figure below showing H1 growth rates of year over year growth rates for Internet  advertising.

Growth Rate of H1 2011 More than Double Growth Rate of H1 2010

First half Internet advertising growth rate by year as reported by IAB, PwC for 1996-2011

We can see from the above growth rates that the first half of 2011 grew at a rate of 23% as opposed to 11% growth rate for the first half of 2010 relative to the first half of 2009. This is a good sign for the health of the Internet advertising industry in what most see as very difficult economic times.

Slight Shift in Internet Advertising Distribution from H1 2010 to H1 2011

Internet advertising spend by category for H1 2010

Internet advertising spend by category for H1 2011

 As we can see from the distributions of Internet advertising spend in H1 2010 to H1 2011, the winners were search (35% –> 36%) and sponsorships (1% –> 2%) at the expense of classifieds (7% –> 6%) and rich media (4% –> 3%). The interesting thing is that since sponsorships are such a small piece of the Internet advertising pie, a 1% change doubled their share and with sponsorships losing 1%, representing a decline of 25% as compared to their 4% share in H1 2010.

Internet Advertising Purchasing Models Continue to Shift Away from Impressions Towards Performance

The trend for Internet advertising to be bought and sold on performance models versus purely CPM (cost per 1000 impressions) continues, shifting the performance risk away from the advertiser and onto the publishers and ad networks.

Internet advertising percentage by purchase model 2010

Internet advertising percentage by purchase model 2011

We can see that from the first half of 2010 to the first half of 2011, a 3% increase in performance-based Internet advertising has occurred. Hybrid models combining performance and impression-based models grew 25% from 4% to 5% while CPM models declined from 35% to 31%, putting more pressure on publishers to sell their inventory on a performance basis, thus requiring publishers and ad networks to take on a bigger stake in an ad campaigns success.

Based on the recent IAB Internet Advertising Revenue Report release by the IAB earlier this week, search revenue in the first half of 2009 accounted for 47% of Internet advertising revenues, up from the 44% reported in the second quarter of 2008. Search has more than double the share of 2nd highest category, Display Advertising, which was 22% up from 21% a year earlier.

Not surprising given the level of qualified traffic that search provides over other forms of interactive advertising and positive impact of running display campaigns concurrent with search initiatives. A key quote by David Silverman, Partner, PricewaterhouseCoopers LLP, the firm sponsored by IAB to conduct the research, “While the overall advertising market has continued to be impacted by current economic conditions, marketers are allocating more of their dollars to digital media for its accountability and because consumers are spending more of their leisure time online.” I couldn’t have said it better myself.

Another key finding in the report is that performance pricing models (e.g. CPA – Cost per Acquisition) are on the rise growing to 58% up from 54% share a year ago versus CPM (Cost per Thousand Impressions) which are on the decline from 44% down to 38% for the same period. The remaining 4% market share purchased on a hybrid model and remained flat. Given the drop in demand for all advertising due to macro economic conditions, it is not surprising that the online media buyers are able to shift the performance risk to the publishers (i.e. buying on a CPA basis) in what some have come to label as a buyers market.

Thoughts?