The IAB and PricewaterhouseCoopers are out with their semi-annual report on the online ad market. IAB/PWC say that interactive revenues were $23.4 billion for 2008, which is up 10.6 percent from the prior year. But everyone seems to be pointing to ominous signs, since the share of second-half revenues was just 51 percent — the worst showing since 2002.

Big trends in the report: Search revenues have gone from 42 percent to 46 percent, display has gone from 35 percent to 33 percent, and lead generation-based revenues have climbed from 6 percent to 7 percent. Meanwhile, classifieds (which include Yellow Pages and auctions) have declined from 14 percent to 13 percent. More startlingly, pay for performance has really boomed, growing from 51 percent to 57 percent of all ad revenues. CPM, meanwhile, has declined from 45 percent to 39 percent.

Kelsey Executive VP Matt Booth notes the report is slightly lower on search and display than Kelsey’s own forecast (although Kelsey forecasts a decline of 8.4 percent this year across all local ad market segments). Given that, Booth is concerned that people may draw the wrong conclusions about interactive’s growth.

“The assumption is that the driver for ad spending is ROI because ‘pay for performance’ is growing and CPM is shrinking if you look at share of both formats,” says Booth. “This is somewhat misleading. The fact is, most advertisers, especially in local, don’t measure ROI; they measure immediate gratification. Getting a quick result is different than getting a good ROI. CPMs are dropping because inventory is skyrocketing, combined with weak national and brand buys.”

It’s important to keep a declining growth rate and ominous signs of slowdown in perspective, Booth adds. “It’s a time of transition and increasing fragmentation. New ad formats are emerging. Let’s remember that after 2002, the ‘minor’ ad improvement called ‘paid search’ started to grow exponentially. If you’re curious, paid search was $1.0B in 2002, $2.1B in 2003 and $3.3B in 2003. We’ll see a similar acceleration of some interactive segments over the next few years.”

Kelsey’s own assessment of the online ad market — specifically, the interactive local ad market — has made Booth more bullish then in any previous year. “In 1997, everyone expected the market to crash and begin a large-scale transition from print to Internet media,” he notes. “What people expected to transpire then is basically happening now.”

“If you think about classifieds, for example, dealers used to buy a newspaper print ad. Now, companies like AutoTrader are selling subscription ads with search views, display ads, call-tracking, lead-gen, photos, inventory collection, etc. These products span traditional ad categories like ‘search,’ ‘display,’ ‘lead-gen’ and ‘classifieds.’  Mobile certainly spans several categories,” Booth says.

“AutoTrader is going to put up slightly less than $700 million this year in top-line revenue,” notes Booth. According to Kelsey’s research, AutoTrader is receiving the majority of the auto spend transition from traditional media.

In the next 24 months, Booth believes “we’ll start seeing an acceleration of product development around local.” He’s especially impressed by efforts such as Citysearch‘s to bundle local content and local advertisements to create “a new type of AdSense for local — one that distributes Citysearch’s local content and along with monetization.” Free local content along with money — it worked for Urbanspoon and it will work for others.

Booth adds that “a new category — ‘E-Mail, Presence and Reputation Management’ (EPRM) — will emerge this year in local. This EPRM segment will grow to $3.1B by 2013. Helping businesses manage their communication and Internet presence will fast become the next interactive growth driver.”