Internet advertising revenue in U.S. sets record in 2010

Performance-based ad revenue increasingly dominant; impression-based revenue stalls

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Internet advertising revenues in the U.S. hit a record $26.04 billion in 2010, according to a PricewaterhouseCoopers report commissioned by the Interactive Advertising Bureau.

That's a gain of 14.9 percent over 2009's total of $22.66 billion and surpasses the previous annual record for Internet advertising revenue of $23.47 billion set in 2008.

Now, before you go concluding that the explosion of mobile devices was the driving force behind last year's record Internet advertising numbers, that actually played only a minor part (for now): Estimated U.S. mobile ad revenue was between $550 million and $650 million. Take that away and you still have a record year.

IAB's press release highlights the obvious things -- Search ad revenue ($12 billion) comprises 46 percent of all Internet advertising revenue and grew 12 percent last year, while Display-related revenue grew 24 percent to $9.91 billion, or 38 percent of online ad revenues.

But it glosses over the trend most responsible for last year's record, which is the increase in performance-based ad revenue.

Performance-based ads last year generated $16.2 billion in revenue, up 21 percent from $13.4 billion in 2009. Performance-based ads accounted for 62 percent of all Internet advertising revenue last year, up from 59 percent in 2009.

Meanwhile, revenues from impression-based ads fell were flat at $8.59 billion, barely above $8.36 billion in 2009. On a market-share basis, impression-based ads fell to 33 percent last year from 37 percent in 2009.

So the $2.8 billion increase for performance-based ads accounted for 83 percent of last year's overall revenue jump from 2009. What this clearly means is that advertisers increasingly prefer to pay for results in the form of some kind of action (click-through) by the user.

The convergence of mobile technology and performance-based ads looms as the next big Internet advertising revenue driver. We're already seeing this convergence in the form of location-based advertising and the growing popularity of "deal of the day" offers.

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