Internet ad sales will lag in '08 and '09, forecast says
SEATTLE - Internet advertising spending in the United States will be lower than expected this year and next, putting pressure on Google, Yahoo, and Microsoft, according to EMarketer Inc.
EMarketer plans to cut its forecast for 23 percent growth in 2008 by "a few percentage points," said analyst David Hallerman. The New York research firm had predicted almost $26 billion in ad sales this year. Hallerman said his estimate for 16 percent growth in 2009 is "also probably too high."
Google Inc.'s chief executive, Eric Schmidt, said for the first time last month that the company, the biggest seller of online ads, faces a more challenging economic environment. Google's ads tied to Internet search results are still faring better than banner ads sold by companies such as Yahoo Inc. and Microsoft Corp., Hallerman said.
In March, Hallerman cut his forecast to $25.9 billion from $27.5 billion, citing a foundering economy. Still, he said ad spending would be resilient as advertisers continue to shift budgets to the Internet from print and television.
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 percent 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 percent in the second quarter, down from 4.8 percent 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 percent in the quarter, according to a preliminary estimate from Karsten Weide, an analyst at market researcher IDC in Framingham, Mass. That growth would be 7 percentage points lower than the rate in the year-earlier quarter, he said.
Without the slowing economy, sales would have increased more than 20 percent, Weide said. Chief financial officers typically cut ad budgets first during a slump.
"The first call the CFO makes is to the marketing department," he said.
Many advertisers realized the economy was getting worse only after they had committed to buying spots for TV shows that start in September, said Steve Kerho, a vice president at the San Francisco ad agency Organic Inc. Those ads are typically bought in May and June. Because they can't get out of those deals without losing money, many advertisers are cutting online spending instead, Kerho said.
Rob Norman, CEO of New York-based GroupM Interaction, which buys online ads for companies such as AT&T and Dell, 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.
