GUY PHILLIPSON remembers one of the very first Internet banners, the AT&T 'You will' ads featuring a big arrow pointing where the user was supposed to click.

"I can kind of understand how in 1994 somebody would have said it was the end of the Internet as we know it," he says, "but to grow the way it has it's had to be commercialised, and I think that's the same with any medium. If you don't have the luxury of the licence fee like the BBC – Channel 4, newspapers, and so on – you have to be funded partially at least by advertising. There are any number of surveys these days asking consumers whether they would prefer their portal of choice or online publisher without advertising but to pay a subscription, and they all say they would rather have it free with advertising. "

On mobile phones, teens accept ads and answer surveys for free minutes and messages. "But to work it has to be interesting, not annoy consumers with appalling pop-ups." Phillipson is chief executive of the Internet Advertising Bureau; it's his job to plan this future. He started out in 1978 as a jazz musician, but in 1982, when his band broke up, he wondered if he had the strength to start over. For temporary finance he got a job doing advertising and promotions for Visionhire that came with a car.

"I thought I would keep going with it for a bit before restarting in the music business, but then I went into marketing and the rest is history." He went on to become marketing communications manager at Barclay's bank and then controlled a £70 million budget as head of advertising for Vodafone UK. He joined the IAB in 2005. It's an interesting time for the industry. Clickthrough rates on banner ads are declining now the novelty is gone, and for growth to continue – 38 percent in 2007, with 18 per cent of UK advertising spend now online – it must change.

"More and more of the long tail of the Internet is going to be monetised now, " he says, while recognising the danger of alienating consumers. "It's the interruption model which I think is broken. And online that means page takeovers, pop-ups, overlays and, to some extent, underlays. The pop-up blocker has actually been helpful to the ad industry ultimately."

But people will, he says, live with banners, skyscrapers and, more recently, video alongside content. "Like a newspaper, you read round it. We can go forward with that. Video is really popular, again because it's new. The IAB's line is that it shouldn't be longer than 15 seconds."

The IAB also favours extending the Advertising Standards Authority's remit to cover promotional Web sites. The future, he says, is likely to be more behavioural targeting using anonymous cookies, the kind of thing that has made Phorm controversial.

"It's a totally anonymous exercise, but it's understandable how people who can be concerned about what Phorm does and what other behavioural companies do. " The rise of third-party advertising networks, which now broker 40 percent of online display advertising and also offer behavioural targeting, means "You are likely to see more ads relevant to you even though you're not necessarily on sites relevant to that product." Overall, "I hope more and more advertising online will become relevant to the consumer."

He believes controversy over privacy issues will change as people gain experience; he compares it to the dying confusion about mobile phone tariffs. Also key is search, which generated 57 per cent of 2007 revenues. "I think the killer app of search will continue and become one of the biggest media in its own right."

Video, growing fast, "is going to become a big part of display advertising online, such that it will kind of merge with TV." Companies will have to adapt; the gorilla ad that won Cadbury's a Palme d'Or at Cannes was remixed as users added different backing tracks, recut the motion and redressed the gorilla as a woman.

"Cadbury's didn't invite them to do that. We're going to see brands letting themselves go a bit online and allow far more user-generated content to occur." µ