Online ad spend set to topple TV

Online advertising spending in the UK shot up by 38 per cent to £2.8bn last year, and is on track to knock TV off the number one spot by the end of next year, according to figures published today.

At £2.8bn, the internet represented more than 15 per cent of the overall market in 2007, up from 11 per cent the year before. The sector has grown nine times faster than the overall advertising industry in the last three years, already out-performing the classified and regional and national newspaper sectors. It is predicted to hit £3.5bn in 2008 and pass the £4bn-mark in 2009, says the report from the Internet Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC).

A key factor in the on-going health of the market is the rise of the online advertising network, which acts as a broker and enables advertisers to access a whole range of websites.

"The portals have extended their offering by buying networks that are particularly attractive because for a low cost you can advertise across thousands of sites and the return on investment is good," Guy Phillipson, the IAB chief executive, said.

Some of the biggest global players are scrabbling for a piece of the increasingly lucrative action.

On Sunday Yahoo announced details of its forthcoming "AMP" management system, which is designed to simplify the process of buying and selling ads online. And Yahoo directors name-checked the scheme in yesterday's letter rebutting Microsoft's $42bn (£21bn) takeover approach as undervalued. Microsoft's approaches to Yahoo are also part of an online strategy, that has already seen it spend $6bn to buy aQuantive, an online ad company, last May. And Yahoo itself bought the Blue Lithium network for $300m in September. WPP, the world's second-largest group of ad agencies, bought online broker 24/7 Real Media for $649m in May after losing out to Google for the purchase of Double Click, the world's biggest online network – the $3.1bn purchase of which was cleared by regulators last month.

"The land grab is very real, fuelled by the continued spending growth and the sector's rosy prospects, particularly as traditional media are either going down or barely meeting the rate of inflation," Mr Phillipson said.

Online advertising may also be a beneficiary of credit crunch-inspired belt-tightening. According to a survey of small businesses by New Brand Vision Group, firms are more inclined to cut traditional marketing budgets than online spend in the event of an economic squeeze.

Nicki Lynas, a senior manager at PricewaterhouseCoopers' entertainment and media practice said: "The internet will do really well in an economic downturn because advertisers are able to set both their budgets and their results targets – it is more controlled and more flexible and more provable."