Online advertising is growing fast. No longer simply an online version of traditional advertising, it's also diversifying, and pioneering new ways to reach consumers. Kate Bulkley reports

The web community has survived periods known as "dotboom" as well as "dotbust", but may just have lived through its most iconic creative moment thanks to a man in a gorilla suit and a Phil Collins pop hit from the 80s.

The drumming gorilla video - part of Cadbury's £6.2m ad campaign for the chocolate bar - started on TV during the finale of Big Brother 8 this summer but now it's been taken over, extended and virtually reinvented online as a viral phenomenon - it's gone "superviral".

The fact it sparked 500,000 YouTube viewings in the first week after being uploaded to the video-sharing site and then went on to spawn its own Facebook page tells us just how powerful the internet is becoming as an advertising medium.

The statistics are now unequivocal: the growth of online advertising is fast and showing no signs of a big slow down any time soon.

In 2006, the UK online advertising spend grew some 40% to £2bn and even one of the less bullish forecasts for 2007 by GroupM, the forecasting arm of WPP, predicts a 34% increase again this year and 30% growth in online advertising in 2008. Meanwhile, old-media television ad revenues in the UK this year are predicted to grow at best between 2% to 3%.

The value of online advertising passed the total spent in the country's national newspapers last year and, by mid-2008, Google will suck in more ad pounds than all of Britain's TV channels put together, according to Mindshare and Initiative, two top media-buying groups. That will mean that Google is taking in morethan £1bn of UK ad money.

The rampant growth of online ads will slow slightly this year because broadband penetration is now over 50% and there are only so many hours in a day for people to be online, says Adam Smith, GroupM's future director.

But it is also true that the competitive market for broadband provision means 86% of UK internet connections are now broadband and, by the end of next year, two in three households in the UK will have broadband, according to internet researcher agency Point Topic.

Online usage is also clearly affecting old media consumption, with a third of Europeans watching less TV once they have broadband, according to Forrester Research. The average European spends 14.3 hours online each week, compared with 11.3 hours watching TV. The growth of online video beyond the low-quality (but hugely popular) clips on YouTube looks to only accelerate as more homes gets broadband.

A report published this summer by GroupM, said that the rise of social networking sites like Facebook and MySpace are putting the brakes on online ad growth because these kind of sites make it "harder to advertise".

In fact, the social networking sites are getting increasingly savvy about how to work with advertisers. There have been some problems, like advertisers pulling ads from Facebook that appeared without their knowledge next to pages by British National Party members, but some sites have also attracted deals that look more like marketing and sponsorship than straight advertising. The online soap is born One example is how P&G's Gillette and Paramount show up in the new online drama called Kate Modern debuted by Bebo this summer. "The sponsorships are really subtle and not like advertising on a banner ad," says Joanna Shields, president of Bebo international.

"The banner ad is just a small part of what we are seeing now," adds Jonathan Davies, executive vice president of advertising sales at CNN International, which co-sells its online and TV inventory. Davies says CNN recently sold its first online campaign that may extend to TV, rather than the usual TV sale with an online add-on. He says the nature of marketing and communication online has changed from "here's our message" to "here's our conversation". "Advertisers want to be associated with a conversation and that is what online can do," says Davies.

Now that online ads are no longer seen as the unloved children of the advertising family, almost every major brand is trying to jump on the bandwagon. Search advertising has been around since the early days of the web, and is still a big part of the whole online equation, and it's growing up.

"Until a year or two ago agencies were a lot more interested in making ads as opposed to getting into search marketing, which is essentially direct response," says the chief executive of a large online sales house who did not want to be named. "The reason is that direct response was always considered the grubby end of the advertising business and so was search."

That view has changed as the "flexibility and accountability" of search has made it look very cost-effective. "We don't do any banner advertising, except through affiliate networks where others put our banners on their own sites and they only get paid when we have a sale through a percentage," says Will Wynne, founder and managing director of online flower shop ArenaFlowers.com. "I would never do any pay-for-impression deals as you have no idea if it's going to work."

ArenaFlowers.com buys search terms that relate to its business and it has content on its site that is tagged so it is picked up by search engines. In July, ArenaFlowers.com took a step into another hot area in online advertising: social networks. It launched a Facebook application that allows "friends" to download a virtual flower-sending application to their personal page and then send virtual flowers to their friends. So far the application has been installed 13,000 times.Seventeen per cent of ArenaFlowers' daily visits originate from the Facebook application and some 24,000 flowers,most of them virtual, have been sent using it although the site has also clocked up 20 real world flower transactions worth £700.

"We've got great brand exposure out of it, for only a few days of work to build it," says ArenaFlowers.com's Wynne. "Also, actual sales have already covered the development costs, so even on a short-term ROI basis we're very happy with it."

But even as both paid for and so-called natural search (connected to relevant content) - continues to grow, online targeting is becoming more sophisticated. "It wasn't so long ago that the online ad piece of a marketer's budget was an after-thought," says Seb Bishop, president of Miva, the new name of the digital advertising network resulting from the 2006 merger of the UK's espotting and US firm FindWhat.

"Now, more and more, the internet strategy is driving the overall strategy. The web acts like a zeitgeist, so you can look at the search words that are being typed in and spot trends almost before they happen. It means a retailer can order products or tailor products to meet imminent consumer demand."

Creative

At the same time, online creative is getting more sophisticated. Specialist digital agencies are gaining currency and with more acknowledgement from brands and advertisers - they have the money to expand the creative envelope. Both the digital boutiques and the digital arms of large agencies like Omnicom and WPP are tapping into ever-increasing online budgets.

"Online creative is getting a lot better," says Alan Greaney, chief executive of digital sales house Media Initiatives Group. "It's no longer about whacking banner ads up there. But in my opinion agencies are still largely holding online advertising back."

Meanwhile, leading internet companies continue to expand their advertising networks by acquisition, the most recent being Yahoo!'s acquisition of BlueLithium for about $300m in cash earlier this month. BlueLithium is the fifth-largest advertising network in the US and the second-largest in the UK, with 145m unique visitors a month. Its speciality is in one of online advertising's big growth areas - behavioural targeting - where relevant ads are served to online users by tracking their surfing patterns.

And Yahoo! isn't the only one looking to expand in this area; AOL bought another behaviourial specialist in July called Tacoda, while earlier this year Google added to its targeting power by paying $3.1bn for the DoubleClick network. The deals underline the huge shift in the digital space, with the barriers among media companies, technology providers and agencies starting to crumble.

The world's second-largest ad agency, WPP, bought online sales house 24/7 Real Media in May to give it a foothold in selling ad space on publishers' sites. Not 24 hours later Microsoft announced a huge $6bn deal to buy aQuantive, the largest interactive ad agency in the US. The deal underscored the face-off building between two of the industry giants, Google and Microsoft, because AQuantive's Atlas ad-serving technology is the main rival to DoubleClick's similar Dart technology.

The online ad business is suddenly like a snowball heading down a sheer rock face - more broadband homes mean more online ad customers with capacity for increasingly sophisticated, richer, video-based messages. They in turn can consume extra budget that can deliver higher "eyeball" numbers.

No one knows when the growth will stop, but why should anyone want to ask right now?

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