Figures released today by the IAB show that the internet was the only marketing medium to experience growth in 2008, with online market share rising to 19.2% as advertisers seek greater accountability and return on investment.

The IAB’s bi-annual online advertising expenditure study – carried out in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC) – shows that spending online increased by £540 million year-on-year. This was achieved against a challenging backdrop which has seen total UK advertising spend fall by 3.5% in 2008 to £17.5bn.

In the second half of 2008, the internet’s share of all advertising spend actually peaked at 19.8%, overtaking total press display. The UK is now the world’s most advanced market for internet advertising with £1 in every £5 of media budgets spent online.

Online display was the only display medium to grow in 2008, up 7.7% to £637.4m, accounting for 19% of all online advertising expenditure. The core embedded formats attracted an increasing number of advertisers, buoyed by sophisticated and measurable new formats such as TV-style rich media.

The continued growth of rich media embedded formats and video is accelerating the decline of interruptive formats, which only accounted for 0.4% of all online spend in 2008.

Paid-for search continues to lead the way online as marketers look for guaranteed accountability, measurability and fast results. Paid-for search grew by 22.7% to £1.987bn, a 59.3% share of all online advertising.

Classified growth remained healthy, up 22.2% to £715.2 millions, a share of 21.4%. Online classifieds across recruitment, property and automotive increased, as these sectors migrated from print to digital formats.

For the first time in 2008, the study broke out the online display figures by sector. Throughout the year the fastest-growing display sector was entertainment and media. In the first half of 2008 it accounted for 10.7% of all online display advertising, and in the second leapt almost six percentage points to 16.3%. Retail also increased its spend significantly, rising from 6.3% in the first half of 2008 to 9.1% in the second half.

When all formats are combined – search, classifieds and display – recruitment continues as the leading sector, accounting for 23.8% of all online advertising spend, followed by automotive (13.5%), technology (11.2%), property (9.7%) and finance (7.6%).

Guy Phillipson, chief executive of the IAB, says: “These are really tough times and advertising budgets are being slashed. More than ever, marketers have to demonstrate a clear return on their media investment – and accountability is online’s trump card. UK advertisers have become digital savvy and they’re now using rich media, ad networks and search in intelligent ways to achieve their sales and brand targets. This shift to digital has propelled online to become a 20% medium.”

Phil Stokes, UK head of entertainment & media at PricewaterhouseCoopers, adds: “As audiences continue to migrate to an online environment for commerce, information, social interaction and entertainment, advertisers are following in ever greater numbers. The growth in broadband household penetration is allowing a far richer mix of video entertainment and advertising to create a ‘near-TV’ feel for mass audiences online and advertisers can see new and innovative ways to build and sustain brands with targeted advertising.”

“Specifically, I wanted to get his take on why we aren’t seeing a seismic shift of budgets from TV to online. The online user base is highly engaged, and there is more premium content and measurement ability than even one year ago. My question centered around the marketers who are interested, but not at the level of going all-in.

“Simple,” my friend said. “Big brand advertisers want scale. TV delivers it, and cheaper. It’s hard not to justify just buying more TV rather than investing in online.”

That statement points to a supply/demand imbalance that online has been struggling with for the past few years. In mid-2008, Forrester pegged premium online video CPMs at $40-$70 (the latter being for a level of programming like NBC’s “The Office”) while TV averaged $25. Even in 2009, when CPMs are lower across the board, TV still wins because it has the critical mass to deliver pricing efficiency. Right now, the only online video format that has significant scale is user-generated video, which most brand advertisers shun for reasons discussed many times in Video Insider posts such as brand adjacency, length of content, quality of content and user experience.

So we wait for the big shift of more professional content creation and consumption to occur, while TV gets the lion’s share of marketer attention. And we wonder when the shift will begin.”

In my response to Eric, I argue that the shift will accelerate as we continue to move away for impression based pricing models to performance and engagement based models. This shift to is already well under way.