One of the main drivers of the market for Internet advertising continues to be the growth in take-up of Internet packages — and notably of broadband connections — by consumers over the past 7 years (since 2000). This has afforded and continues to afford greater opportunity for creativity in advertisement design, including the development of rich-media advertisements, which are more suitable for the faster broadband connections than for traditional dial-up connections.

Expenditure on Internet advertising is expected to have continued rising at a strong rate during 2006, reflecting confidence in online advertising by the marketing community, and securing the position it had established since 2003 as the fastest-growing advertising medium.

Paid-for search marketing, first adopted in 2001, largely by online businesses in the travel and finance sectors, continues to be an increasingly important element within the Internet advertising mix. It is popular with media buyers because it is simple and its success is easily measurable.

A turf war is developing among online advertising agencies. Small, independent agencies — which have emerged as a result of the lack of confidence in the market in the early 2000s — are being challenged by big, traditional agencies, which are restructuring to put digital media at the heart of their strategies.

One of the most important barriers to Internet advertising reaching mainstream status in terms of advertising media has been the difficulty in measuring how effective it is. As a result, November 2004 saw the launch of a global standard for counting online advertising impressions. This marked some firsts in the advertising industry: not only was this the first global measurement standard of its kind, but it was also the first time the advertisement itself had been measured as delivered to the consumer (versus other media that measure the programming or content).

Key Note's original research found that 93% of respondents who had accessed the Internet in the 12 months leading up to the survey could now access the Internet at home. The survey also revealed that 78% of those who had used the Internet in the previous year had broadband Internet access, at home, at work or in their place of education.

Online shopping is now well established in the UK; 85% of all Internet users identified by Key Note's survey had personally bought goods or services over the Internet. However, a relatively high proportion (36%) of respondents were deterred from Internet shopping by the risk of fraudulent card use online.

The marketing of websites through other media continues to be successful. In addition, the percentage of Internet users who had been directed to websites from advertisements on other sites was an impressive 61%, according to the findings of Key Note's research.

A quarter of Internet users said that they had clicked on Internet advertisements, while 52% said that they thought rich-media Internet advertisements that included music and/or animation worked better or attracted more attention than those without. However, despite this implied interest in online advertising, 73% of Internet users stated that they had software that blocked Internet advertisements.

E-mail marketing was acceptable to 38% of Internet users, but only 9% of respondents who had used the Internet in the previous 12 months agreed that they had been influenced to visit certain websites online by messages sent to their mobile telephones, containing information or advertising about websites.

Key Note forecasts that the Internet advertising market will continue to grow at a strong pace for the next 2 years (2007 and 2008) and maintain a steady momentum thereafter to 2011.

1. Introduction
OVERVIEW
DEFINITION

2. Strategic Overview
BACKGROUND
INTERNET ACCESS
Table 1: Households in Great Britain with Access to the Internet (%), 2002-2005 and January-April 2006
Figure 1: Households in Great Britain with Access to the Internet (%), 2002-2005 and January-April 2006
Table 2: UK Home Internet Access — Broadband and Narrowband Penetration (%), First Quarters 2004-2006
Figure 2: UK Home Internet Access — Broadband and Narrowband Penetration (%), First Quarters 2004-2006
Table 3: UK SME Internet Access by Main Connection Method (%), 2002-2005
THE CONSUMER
Variations in Internet Access
Table 4: Households with Home Access to the Internet by Government Office Region and Type of Connection (%), 2005 and 2006
Why 43% of Households Still Do Not Have Internet Access
Table 5: Reasons Why UK Households May Not Have Internet Access (% of UK households), 2006
Internet Usage
Table 6: Most Recent Use of the Internet by Sex and Age (% of UK adults), April 2004 and 2006
Table 7: Most Recent Use of the Internet by Income Bracket (% of UK adults), April 2006
Table 8: Adults Who Had Used the Internet in the 3 Months Prior to Interview by Frequency of Use by Sex and Age (% of UK adults), April 2006
Table 9: Adults Who Had Used the Internet in the 3 Months Prior to Interview by Place of Access (% of UK adults), April 2004 and 2006
Table 10: Adults Who Had Used the Internet in the 3 Months Prior to Interview by Purpose of Access by Sex (% of adults), April 2004 and 2006
Table 11: Adults Who Purchased Goods or Services Over the Internet by Recency of Online Purchasing by Sex (% of UK adults), 2006
Table 12: Internet Purchases by UK Adults in the Past 12 months (% of UK adults), 2006
TRADE ASSOCIATIONS
The Internet Advertising Bureau
The UK Association of Online Publishers
MARKET SIZE
MARKET FORECASTS

3. Market Analysis
MARKET SIZE
Table 13: Total UK Internet Advertising Expenditure (£m), Years Ending December 2001-2006
Figure 3: Total UK Internet Advertising Expenditure (£m), Years Ending December 2001-2006
Table 14: Share of UK Advertising Expenditure by Medium (%), Years Ending December 2001-2005
SEGMENTATION
Table 15: UK Internet Advertising by Industry Category (% of half-year revenues), Second Halves 2004 and 2005
Table 16: Top Ten Categories of UK Internet Advertising by Number of Campaigns, Banners and Advertisers, 2005
Table 17: Top Ten UK Advertisers on the Internet by Number of Campaigns and Number of Banners, 2005
INTERNET ADVERTISEMENT FORMATS
Table 18: UK Internet Advertising by Format (% of half-year revenues), First Halves 2005 and 2006
Search Marketing (Paid Listings)
Classified Advertising
Display Advertising
Table 19: Internet Advertising by Display Format as a Percentage of Half-Year Revenues, First and Second Halves of 2004 and 2005
Banners/Embedded Advertisements
Tenancies
Interruptive Advertisements
COMPETITIVE STRUCTURE
MEASURING EFFECTIVENESS
RECENT CAMPAIGNS
THE CONSUMER
Online Consumer Profile and Behaviour
Social Network and Blogging Sites

4. An International Perspective
OVERVIEW
EUROPE
European Industry Bodies
European Interactive Advertising Association
Interactive Advertising Bureau Europe
Online Advertising Expenditure in Europe
Table 20: EU-15 Media Share (%), 2004-2007
Allocation of Time Spent by Consumers on the Internet in Europe
Table 21: Allocation of Time Spent by Consumers on Media Type in Europe by Selected Countries (average number of hours per week), 2006
Online Activities Throughout Europe
The Role of Online Advertising in Europe
Table 22: Growth in Internet Advertising Expenditure by Market (%), 2006-2008
Table 23: Growth in Internet Advertising Expenditure by Sector (%), 2006-2008
Table 24: Percentage of Increased Online Advertising Expenditure That Has Come From Other Media by Market (%), 2006
THE US
Table 25: Trends in Internet Advertisement Formats in the US (% share of market), Full Years 2004 and 2005, and First Halves 2005 and 2006

5. PEST Analysis
POLITICAL FACTORS
ECONOMIC FACTORS
SOCIAL FACTORS
TECHNOLOGICAL FACTORS

6. Consumer Dynamics
OVERVIEW
Table 26: Summary of Original Research Findings — Use of the Internet and Attitudes Towards Online Advertising (% of all respondents and % of respondents who had accessed the Internet in the previous 12 months), August 2006
INTERNET ACCESS
Access to the Internet in the Previous 12 Months
Table 27: Internet Access in the Previous 12 Months (% of all respondents), August 2006
Access to the Internet Via Broadband Connection
Table 28: Internet Access Via Broadband (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Location of Internet Access
Table 29: Internet Access From Home and From Work (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 30: Internet Access From School, College or University and From a Library (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 31: Internet Access From Elsewhere (e.g. an Internet Café) (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Frequency of Internet Access
Table 32: Frequency of Internet Access — Less Than Once a Month, and More Than Once a Month But Less Than Once a Week (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 33: Frequency of Internet Access — Weekly or More Than Once a Week, and Daily or More Often (% of respondents who had accessed the Internet in the previous 12 months), August 2006
INTERNET SHOPPING
Attitudes Towards Purchasing Goods Over the Internet
Table 34: Actual and Potential Purchasers of Goods or Services Over the Internet (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 35: Those Deterred From Purchasing Goods or Services Over the Internet by the Risk of Fraudulent Card Use Online (% of respondents who had accessed the Internet in the previous 12 months), August 2006
INTERNET ADVERTISEMENTS
Responses to and Attitudes Towards Internet Advertisements
Table 36: Responses to and Attitudes Towards Internet Advertisements (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Use of Software to Block Internet Advertisements
Table 37: Use of Software to Block Internet Advertisements (% of respondents who had accessed the Internet in the previous 12 months), August 2006
CLASSIFIED ADVERTISEMENTS ON THE INTERNET
Visiting Internet Sites That Include Classified Advertisements
Responding to and Placing Classified Advertisements on the Internet
Table 38: Visiting Internet Sites With Classified Advertisements, and Responding to Online Classified Advertisements (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 39: Placing Classified Advertisements on the Internet (% of respondents who had accessed the Internet in the previous 12 months), August 2006
PROMOTION OF WEBSITES VIA E-MAIL
Attitudes Towards Promotion of New Products and Services by E-Mail
Responding to E-mail Alerts and Then Visiting the Websites Mentioned
Table 40: Attitudes Towards and Responses to Promotions by E-Mail (% of respondents who had accessed the Internet in the previous 12 months), August 2006
VISITING WEBSITES AS A RESULT OF ADVERTISING/INFORMATION VIA OTHER MEDIA
Television, Newspapers, Magazines, Billboards, Other Websites and Mobile Telephone Text Messages
Table 41: Visiting Websites as a Result of Advertising/Information Seen on Television and Read in Newspapers (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 42: Visiting Websites as a Result of Advertising/Information Read in Magazines and Read/Observed on Billboards (% of respondents who had accessed the Internet in the previous 12 months), August 2006
Table 43: Visiting Websites as a Result of Advertising/Information From Other Websites and Via Mobile Telephone Text Messages (% of respondents who had accessed the Internet in the previous 12 months), August 2006

7. Company Profiles
INTRODUCTION
CONCHANGO (UK) PLC
Corporate Strategy
Profitability
Table 44: Financial Results for Conchango (UK) PLC (£000), Years Ending 31st December 2003-2005
Recent and Future Developments
DIFFINITI LTD (CARAT INTERACTIVE LTD)
Corporate Strategy
Profitability
Table 45: Financial Results for Carat Interactive Ltd (£000), Years Ending 31st December 2001-2003
Table 46: Financial Results for Diffiniti Ltd (£000), 17 Weeks Ending 31st December 2004
Recent and Future Developments
I-LEVEL LTD
Corporate Strategy
Profitability
Table 47: Financial Results for i-level Ltd (£000), Years Ending 31st March 2003-2005
Recent and Future Developments
LBI INTERNATIONAL AB (INCLUDING FRAMFAB/OYSTER/WHEEL)
Corporate Strategy
LBI International AB (Framfab and LB Icon Merger) 136
Oyster Partners
Wheel
Profitability
Table 48: Financial Results for LB Icon Ltd (£000), 57 Weeks Ending 31st January 2004, 48 Weeks Ending 31st December 2004 and Year Ending 31st December 2005
Table 49: Financial Results for Framfab UK Ltd (£000), Years Ending 31st December 2003-2005
Table 50: Financial Results for Oyster Partners Framfab Ltd (£000), Years Ending 31st December 2003-2005
Table 51: Financial Results for Wheel Ltd (£000), Years Ending 30th June 2003 and 2004, and 78 Weeks Ending 31st December 2005
Recent and Future Developments
POKE Ltd
Corporate Strategy
Profitability
Recent and Future Developments
PROFERO LTD
Corporate Strategy
Profitability
Table 52: Financial Results for Profero Ltd (£000), Years Ending 31st March 2003-2005
Recent and Future Developments
TRIBAL DDB
Corporate Strategy
Profitability
Recent and Future Developments
TWENTYSIX LONDON LTD (INCEPTA ONLINE LTD)
Corporate Strategy
Profitability
Table 53: Financial Results for Incepta Online Ltd (£000), Years Ending 28th February 2004-2006
Recent and Future Developments

8. The Future
OVERVIEW
FORECASTS
Table 54: Forecast Total UK Internet Advertising Expenditure (£m), Years Ending December 2007-2011
Figure 4: Forecast Total UK Internet Advertising Expenditure (£m), Years Ending December 2007-2011

10. Consumer Confidence
METHODOLOGY
KEY FINDINGS THIS QUARTER
THE WILLINGNESS TO BORROW
Confidence Slips Slightly
Table A: The Average Amount Consumers Are Willing to Borrow in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), November 2005-2006
Significantly More Adults Are Willing to Borrow
Table B: The Number of Adults Willing to Borrow in Order to Purchase Expensive Items (000 and %), November 2005-2006
SPENDING FROM SAVINGS
Little Change in Spending from Savings
Table C: The Average Amount Consumers Are Willing to Spend from Savings in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), November 2005-2006
Saving Grows in Relative Importance
Table D: The Average Amounts Adults Are Confident Spending to Purchase Expensive Items (£ and %), November 2005-2006

11. Further Sources
Associations
Publications
General Sources
Government Publications
Other Sources
Bisnode Sources