IAB: 2007 Online Ad Revs = $21 Billion

The IAB reported its estimate that 2007 saw 25% growth in online ad revenues for a total of $21.1 billion vs. $16.9 billion in 2006. You can expect the distributions to be similar to 2006:

• Search — 41%
• Display — 32%
• Classifieds (which includes directories) — 18%
• Lead Generation — 8%

Microsoft is engaged in a project to, depending on your view, a) more accurately capture and reflect consumer behavior by reflecting that a broader range of influences (beyond the “last click”) contributes to conversions or b) discredit search (and by extension Google) in the minds of advertisers or c) both.

Here are some paradoxes and truths as I perceive them:

• People are overwhelmed by ads even as advertising becomes more ubiquitous
• Ads that are not “relevant” are less and less effective with consumers who now ignore advertising as a matter of course
• Display ads are less effective than search in terms of response rates (video may become an exception)
• Search is the most effective medium online, but search + brand provides lift to both
• More ad budgets are moving into online branding vehicles than search, with search as an almost “perfunctory” part of a larger online branding campaign

This creates a very interesting situation and a push to make brand/display advertising online more effective — and in some sense more like search behaviorally. Behavioral targeting is one of the approaches widely embraced by marketers and publishers and hailed as a savior of online branding. However, it’s highly problematic because of consumer tracking and privacy issues. The industry will need to quickly establish privacy standards and make them very transparent or outside regulators (especially in Europe) will cut the legs out from under it.

The other approach, which is “cleaner” and more interesting to me, is to turn display into directional marketing (See, e.g., Admission, Linkstorm and ShopLocal). All these companies make traditional display ads more interactive and “directional” by making them more “engaging” and interactive. Indeed, this category can be called “branded response” or “direct display.” One of the interesting things that Linkstorm does with video ads is to create a menu overlay that can go on an existing video ad but make it interactive, with specialized menus and landing pages (e.g., store locators, product specs, etc.)

Of course, these direct display ads can also be combined with BT data mining for even higher response rates.