Internet groups brace for subprime fallout

By Richard Waters in San Francisco

Published: August 27 2007 20:30 | Last updated: August 27 2007 20:30

Internet companies are bracing for a possible fall-off in one of their biggest sources of advertising following the meltdown in the subprime mortgage market.

Besides mortgage advertising specifically directed at less credit-worthy borrowers, the ripples from the financial upheaval could extend to other forms of credit as well as the credit scoring agencies that are also big advertisers online, analysts warned.

Pricing could also be hurt more broadly on some classes of advertising on web search engines, because fewer advertisers are expected to be competing in the advertising auctions run by companies such as Google to have their messages displayed next to specific keywords.

“A lot of the subprime [advertising] has gone away,” said David Jakubowski, general manager of Microsoft’s MSN service.

This loss had yet to have a broader effect in the search business, he added.

“I haven’t felt a pricing hit because of it,” he said. “We haven’t seen anything crazy happen,” though he added that the company continued to keep a close eye on this area for more fallout.

Many online companies depend for a disproportionate amount of their income on financial services advertising, with subprime in some cases accounting for a large part of it.

Sixteen per cent of all online advertising comes from financial services companies, making it the second biggest source of advertising behind the retailing sector, said Sandeep Aggarwal, an internet analyst at Oppenheimer.

Companies that lent to subprime borrowers relied heavily on the internet to attract customers, concentrating the effect of the meltdown, said Rick Sizemore, an analyst at Multimedia Intelligence.

According to data from Nielsen/NetRatings, mortgage lenders Countrywide and Low Rate Source were two of the 10 biggest online advertisers in the US in July.

Experian Group and Privacy Matters, which advertise to consumers who are concerned about their personal credit scores, also numbered among the top 10.

Others, such as Lending Tree, the mortgage company, and Capital One, the credit card group, regularly rank among the biggest US advertisers on the web.