Internet advertising is a big deal and getting bigger – generating almost $3 billion in revenue per year here in Canada.

According to the latest available figures from the Interactive Advertising Bureau of Canada, “In 2010, online ad revenues surpassed daily newspaper ad revenues. As a result, the Internet is now second only to Television in terms of share of total Canadian media advertising revenue (15.9 per cent). Online advertising’s 23 per cent increase from 2009 to 2010 also bested other major media, all but one experiencing only single-digit growth rates during this time.”

In past years this advertising spend was dominated by “digital display” ads (i.e. banner or button ads and the like). In spite of years of dire predictions of the demise of banners, total spending on digital display ads in Canada continues to increase, to the tune of $688 million in 2010, a 19 per cent increase year over year according to IAB Canada.

Just because companies keep buying them doesn’t mean they are good. As a marketer I’m not a fan of banner ads. I find them intrusive and their performance is abysmal. They feel like ads from a bygone era shoehorning their way onto the web. As Mike Chapman wrote in AdWeek last May: “Everyone knows that clickthrough rates on banner advertising are appallingly low, measured in tiny fractions of a per cent these days. Dull old email gets click-through on average in the U.S. of five per cent or so, and even direct mail response rates still hover around three per cent, according to the Direct Marketing Association.”

Which probably explains why ad spending is growing faster in search advertising and pay-perclick (PPC) than in digital display. Marketers are looking for accountability in their media spending and performance-based payment systems. In other words, I only pay if the audience does something, like click on my ad.

IAB Canada reports, “Search advertising continues to lead in terms of share of dollars booked by Online Publishers ($907 million/41 per cent),” which was a 22 per cent lift over 2009.

To better understand these alternatives to digital display I turned to Jeff Nelson, president at Anduro Marketing, an Internet marketing firm that specializes in search ads, PPC and social media.

“Let’s look at it from both points of view,” said Nelson, “the consumer and the marketer.

“The consumer has wants and needs, simple as that. Consumers need services and things. They need to buy things in order to satisfy these wants and needs. And they have many choices.”

Somehow the consumer must seek out information to make these choices.

“On the other hand,” said Nelson, “the marketer wants to show ads to specific target groups – market segments – to help them satisfy these wants and needs.

From a segmentation point of view, Google AdWords allows me to target search terms for a geographical area but not any other segment characteristics like age, gender, marital status or interests. Facebook, however, does allow demographic segmentation and targeting.”