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The latest figures from the Internet Advertising Bureau (IAB) reveal that advertisers spent £490.8m online from January to July; 62.3 per cent more than the same period last year.

This gives the internet a 5.8 per cent share of all ad spend, overtaking outdoor (at 5.1 per cent) for the first time and radio at 3.6 per cent.

It also means that web spend is on course to hit the £1 billion milestone before the end of the year, way ahead of the IAB's target of summer 2006.

What the IAB figures do not show is where all this extra cash is coming from. "Total growth in the advertising market is only about three per cent, and we don't believe there is very much new cash coming into the advertising pot," says Guy Phillipson, chief executive at the IAB. "It's very difficult to track where the money is coming from, but it is clear that marketers are switching money to online."

Direct spend

Figures from the Advertising Association for the same six-month period suggest direct mail and press are being hit hardest. Spend on direct mail fell 6.5 per cent, while display and classified ads saw growth of just 0.7 per cent and -0.2 per respectively (see graph).

"A lot of the money that was being put into direct mail and radio is being spent on digital instead. It's a well-known fact that radio is suffering because of the internet, despite what the Radio Advertising Bureau is saying," comments Gray Dudek, ECRM director at agency ITG Digital Marketing.

Paul Fitzpatrick, who handles Vauxhall's web advertising, says: "We are spending more online. The extra money comes from a bigger overall budget and other media. It always comes down to the product, but I'm getting bigger chunks of money for some cars. Where that happens, press and radio are the ones seeing small drops in spend."

The top five spenders on web advertising are still recruitment, finance, technology, travel and automotive, all of which saw a big rise in the first half of 2005.

Possibly the best news is that the consumer goods sector is spending more, after its drop in the second half of 2004. "We started to see a rumbling among FMCG advertisers. By this time next year, we should see a bigger hike in that sector," says Phil Macauley, head of planning and strategy at Yahoo! Europe.

If that happens, next year's growth could be even bigger.