US online ad spending will be slower than expected

US online ad spending will be slower than expected
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First Published: Wed, Aug 13 2008. 10 10 PM IST
Updated: Wed, Aug 13 2008. 10 10 PM IST
Seattle: Internet advertising spending in the US will be lower than expected this year and next, putting pressure on Google Inc., Yahoo Inc. and Microsoft Corp., according to EMarketer Inc.
EMarketer plans to cut its forecast for 23% growth in 2008 by “a few percentage points,” said analyst David Hallerman. The New York-based research firm had predicted almost $26 billion (Rs1.1 trillion) in ad sales this year. He said his estimate for 16% growth in 2009 is “also probably too high”.
Google chief executive officer Eric Schmidt said for the first time last month that the company faces a more challenging economic environment. Google’s ads tied to Internet search results are still faring better than most of the graphical banner ads sold by firms such as Yahoo and Microsoft, Hallerman said.
In March, Hallerman cut his forecast to $25.9 billion from $27.5 billion, citing a floundering economy. Still, in the title of the report, he said ad spending would be resilient as advertisers will shift budgets to Internet from print and TV.
Since then, the picture has deteriorated as advertisers accept that “the economy won’t be turning around on a dime”, he said. EMarketer hasn’t released its updated forecast yet.
Google’s second quarter earnings missed analysts’ estimates, while Yahoo posted an 18% drop in profit amid increased spending on new projects. LookSmart Ltd, which sells ads on sites such as Ask.com, said last month that some marketers are cutting back on spending. Microsoft’s Internet ad revenue in the latest quarter missed the company’s forecasts.
The US economy expanded 1.9% in the second quarter, down from 4.8% a year earlier. Growth was less than forecast as a housing slump and rising unemployment worked against federal tax rebates.
Spending on Internet ads grew 18.9% in the second quarter, according to a preliminary estimate from Karsten Weide, an analyst at market researcher IDC in Framingham, Massachusetts. Growth would be 7 percentage points lower than the rate in the year-earlier quarter, he said.
Without the slowing economy, sales would have risen more than 20%, Weide said. Chief financial officers typically cut ad budgets first during a slump.
Rob Norman, CEO of New York-based GroupM Interaction, which buys online ads for companies such as ATandT Inc. and Dell Inc., said clients are sticking with ads that are closely linked to customer purchases. That benefits Google’s business of selling ads next to Web search results, he said.
Still, that means Google may not be able to attract as many advertisers as it would like to the YouTube video-sharing site because clients find it hard to target specific users on YouTube, Norman said. “It’s not going to be the easiest year,” he said. “The queen would call it an annus horribilis.”
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First Published: Wed, Aug 13 2008. 10 10 PM IST
More Topics: US | Advertising | Online | Google Inc. | Yahoo Inc. |