US internet advertising grew 30 per cent in 2005, though it still remains a small portion of overall ad spending, according to a new report.

Internet advertising reached $12.5 billion in 2005, up from $9.6 billion in 2004, a growth rate described in a statement as "tremendous" by the Interactive Advertising Bureau (IAB), which commissioned the study conducted by PricewaterhouseCoopers (PWC).

The IAB and PWC attributed the growth to the increasing effectiveness of online ads, which offer a variety of options for advertisers to market their products and services.

Online ads hit 'monster growth'

With growth of 32 per cent in 2004 over 2003, and projected growth of between 25 per cent and 30 per cent this year, the online ad market is experiencing "monster growth," said Greg Stuart, the IAB's chief executive officer, in an interview.

"We should continue to see dramatic increases in online advertising for the next few years. There's no reason to believe that it's going to slow down. In fact, it seems as though marketers are just now getting it," Stuart said.

Still, internet advertising made up only 4.7 per cent of total ad spending in the US in 2005. While this is an improvement over 2004, when internet ads accounted for 3.7 per cent of the overall market, it's still small compared with other ad segments, such as direct mail ($56.6 billion), newspapers ($47.9 billion) and broadcast and syndicated television ($35 billion).

Further growth likely

For Stuart, this is an indicator of the potential growth still in store, because while the internet gets less than 5 per cent of overall ad spending, it captures on average 15 per cent of consumers' media consumption time. Stuart expects this gap to narrow as marketers continue warming up towards online advertising, a trend for the past several years.

Within internet advertising, the most-used format - with 41 per cent of the pie - was search, in which advertisers pay online companies to display a text ad with a link to their websites based on a keyword or phrase entered on a search engine or included on a web page. This format's biggest players include Google and Yahoo and has categories such as paid listings, contextual search and paid inclusion.

Display advertising, such as banner ads, came in a distant second with 20 per cent of 2005 revenue, followed by classifieds with 17 per cent.