Study shows online ad revenue up 15% to $26B

More ad dollars shifting to digital as consumers are spending more time online than in front of a TV

The online advertising industry saw some big gains in 2010, according to a report released Wednesday by IAB (the Internet Advertising Bureau).  Online advertising revenues generated a record $26 billion in 2010, representing an increase of 15% over 2009, which saw $22.7 billion in total online ad revenue. The fourth quarter alone raked in $7.45 billion, a 16% increase over the third quarter and a full 19% increase over the same quarter in 2009.

Search continues to take the largest piece of the advertising revenue pie, accounting for 46% of the total online advertising market, which represents a slight drop from 47% in 2009. But while search’s market share declined, revenues increased to $12 billion, up 12% from $10.7 billion in 2009.

Display ads came in second with 38% of 2010 revenues, totaling $9.9 billion and representing an increase of 24% over the $8 billion generated in 2009. Display ads include banner ads, which drew in $6.2 billion; rich media, which saw $1.5 billion; digital video display ads, which drew $1.4 billion last year; and sponsorship deals, which generated $718 million.

Classifieds, lead generation, and email continue to play small supporting roles in the overall online advertising market, but email ad revenue took a big hit in 2010, dropping 33% to $195 million in 2010, compared to $295 million in 2009.

So what accounts for the big surge in online advertising (not including email’s sorry performance)? Answer: ad dollars’ shift to digital.

“Consumers have shifted more of their time to digital media—watching television shows and movies online—and advertisers now accept this multifaceted medium as a key component for reaching their targets,” said Randall Rothenberg, President and CEO of IAB in a statement.

Indeed, this was recently demonstrated in a study released by IAB earlier this month that found that advertisers and marketers plan to ramp up their digital video advertising (DVA) efforts over the next 12 months. The survey questioned 148 marketers and 352 agencies and the vast majority reported that they have plans to increase their DVA spending over the next year by an average of 22% across the board.

Some of the survey's key findings indicate that not only is DVA more cost effective, it's also more effective at engaging audiences as consumers tend to spend more time with online video than anything else. Additionally, digital video advertising is easier to track and comes with better ROI measurement.

Retail advertisers comprise the largest group in online ad spending, accounting for 21% in 2010 with $5.5 billion, followed by telecom companies, leisure travel companies, and financial services.