Wednesday, February 25, 2009

Online Ad Spending Seen Shrinking

Internet advertising could fall by 5% in the first quarter of 2009, the first contraction in online ad spending since the dot-com bubble burst in 2001, market research group IDC said Wednesday.

IDC analyst Karsten Weide also said the U.S. Internet ad market could get worse in the second quarter before the situation improves in the second half of the year.

Mr. Weide said his latest estimates suggest the low double-digit growth rates that most industry forecasts assume for 2009 may be too optimistic. IDC itself had previously forecast a 10% growth in online ads for 2009.

The research group's estimates highlight the challenges that Internet giants Google Inc. and Yahoo Inc. face as their core revenue streams continue to deteriorate amid a deepening global recession.

Mr. Weide said IDC's revised outlook reflects results from the group's upcoming fourth quarter Internet ad report. It concludes that while world-wide Internet ad spending continued to grow at a muted pace, fourth-quarter U.S. Internet advertising sales were much worse than anticipated -- up just 0.4% to $7.13 billion.

Mr. Weide said growth in fourth-quarter search ads was only barely able to offset losses in display and classified spending. He forecast that while first-quarter search ad revenue will not collapse, growth will continue slowing -- and display and classified ads will most likely show worse declines than in the fourth quarter of 2008.

Google's dominance of the search advertising market has made it more resilient to the downturn than struggling Yahoo, which depends much more on display advertising.

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