Web advertising spend tops £4bn for first time

Online advertisers in the UK took their annual spend to more than £4bn for the first time last year as the digital market share hit a record high.

Research published today by the Internet Advertising Bureau (IAB) and the accountant PricewaterhouseCoopers showed that online advertising grew by 12.8 per cent, from £3.5bn in 2009 to £4.1bn a year later. Joshua March, a social media entrepreneur, said: "This is still the tip of the iceberg in terms of how much spending will swing into digital in the future."

The digital share of the UK's total advertising spend of £16.6bn last year rose to 25 per cent. Internet advertising spending is closer to 15 per cent in Europe and 16 per cent in the US.

Guy Phillipson, head of the IAB, said the market was "almost back in its pre-recession heyday" and online spending was "higher than I expected". "In 2009, brands really began to understand how to use the internet. That has improved in 2010 – a year when budgets have also grown," he said. The total advertising market grew by 7.2 per cent, with 77 of the top 100 advertisers increasing their spending last year, according to the research group Nielsen. Consumer goods and retail companies raised their online budgets to become two of the four largest spenders on display advertisements. However, the financial sector spent the most in 2010, overtaking entertainment and media, with a 15.2 per cent share, the report said.

While the online market may not continue to grow quite so aggressively as in recent years, Mr Phillipson said he expected spending to breach £5bn "in the next few years". The consensus expectation for online advertising for this year is growth of 7.7 per cent, although the IAB said its internal predictions were more optimistic.

Much of 2010's online growth was driven by display advertising, which increased by 27.5 per cent from a year earlier to £945.1m, as more and more companies shifted spending on to the web. This reflected an increase in the number of active internet users in Britain, which stood at 40.3 million in December, according to Nielsen and the UK Online Measurement Company. Today's IAB/PwC survey also suggests that improvements in internet infrastructure have supported the growth of online advertising.

Search advertising continues to dominate online advertising spending in the UK, which rose 8 per cent in 2010 to £2.3bn. Mr Phillipson said the UK's search advertising market was "the most advanced in the world in terms of market share".

The rise of social media was also reflected, with advertising spending in this sector rising nearly 200 per cent. Computer users in the UK spend a quarter of their time online visiting networking sites such as Facebook.

Mr March, the founder and chief executive of Conversocial, a software company that helps brands to manage their marketing and support on Facebook and Twitter, said: "The cost effectiveness of online ad spend, especially with social media, gives companies the opportunity to build up a fan base that they can then communicate with for free, and makes it more attractive than other forms of media."

"This is combined with the increasing ability to tie online advertising spend directly to results such as purchases or actions."

Facebook has stepped up its drive to attract advertising executives to the social network with the launch of a new site called Facebook Studio.

In its report, the IAB pointed to "stellar growth" in mobile advertising, which more than doubled to £83m. Mr Phillipson said mobile was "finally coming of age". Growth was seen in adverts around online videos, up from £28m in 2009 to £54m a year later.

Despite pressure on the housing, jobs and car markets, online classified advertising "bounced back" in 2010, growing by 9.7 per cent to £751m, though its share of the market fell by one percentage point to 18 per cent.