ONLINE AD WAR

August 7, 2007 Web advertisers are spreading their online ad dollars across more sites and are paying lower rates in many cases, putting pricing pressure on established Internet players.

Several companies are already feeling the heat after reporting results that showed weakness in online ad revenue from Web banners and other display ads.

Time Warner's AOL reported a sharp ad sales slowdown last week. In mid-July, Yahoo! posted disappointing revenue from display ads and cut its forecast for the rest of the year.

At least three other big Web publishers - the New York Times, the Washington Post and the technology-focused Cnet - reported slowing Internet ad growth recently.

Analysts and ad execs say established Internet sites - namely, the big portals and large content providers - are starting to feel the pinch after years of charging top dollar for space on their sites.

The pricing pressure is apparent in AOL's most recent results, in which ad growth slowed to 16 percent from nearly 40 percent over the past few quarters.

Online ad growth at the Washington Post fell to 11 percent in the second quarter, compared with 36 percent a year earlier.

"People are still buying display ads, but they are buying them elsewhere and for less than if they bought them from AOL or Yahoo!," said Jupiter Research analyst David Card.

This shift is benefiting newcomers - such as social networking sites like Facebook, MySpace and YouTube - at the expense of more established rivals that were once considered "must buys."

"We have a lot more choice and a lot more options out there," said T.S. Kelly, head of research at Media Contacts, the interactive arm of media buying firm MPG.

It used to be that if an advertiser wanted to reach a lot of potential car buyers, their options were limited to buying the homepage of a portal like Yahoo! or a car review site like Edmunds. com.

Now, technology has made it easier to deliver ads to the right person at the right time across a multitude of Web sites.

Ad networks, for instance, aggregate Web publishers and allow advertisers to buy ads on hundreds of sites and target users based on location and other characteristics. There are also ad exchanges that automatically pair buyers with sellers.

Both give advertisers easy access to tons of cheap ad inventory that might otherwise have gone unsold.

"Advertisers have shown a willingness to embrace ad exchanges and ad networks offering inventory at lower rates," said Darren Chervitz, an analyst for the Jacob Internet Fund.

Not surprisingly, Yahoo! and AOL have sought a piece of that business by buying their own ad networks and exchanges. Yahoo!, for instance, bought ad exchange Right Media to sell more of its "non-premium" inventory, while AOL owns ad network Advertising.com.