Online Ad Spending: It's Ugly Out There

Sam Gustin sees more evidence of the toll being inflicted on Web advertising by the slowing economy.

As the internet advertising economy has developed, a couple of macro-trends have emerged.

First, and most obviously, online ad spending is growing much more rapidly than print and broadcast ad spending. Second, in tough economic times, online ad budgets are more buoyant than traditional ad budgets because marketers view Web ad spending as a better investment because it's easier to measure the effectiveness of online advertising.

All of which makes the latest lowered projections for Web ad spending more ominous.

For the third time in a year, eMarketer has lowered its forecast for 2008 Web ad spending, from $27.5 billion last November to $25.9 billion in March, and now to $24.9 billion. The research firm's projection marks a 17 percent increase over 2007, down significantly from its 29 percent growth forecast last November and and 23 percent forecast in March.

EMarketer expects the downward pressure on Web ad spending to extend through 2009. In an interview with Bloomberg, eMarketer analyst David Hallerman said that his forecast of 16 percent growth in 2009 is "also probably too high.''

In May, eMarketer reduced its 2008 forecast for social network ad spending from $1.6 billion to $1.4 billion.

Other market researchers are seeing similar trends. Karsten Weide, an analyst at IDC, told Bloomberg that online ad spending grew 18.9 percent in the second quarter, a growth rate 7 percentage points lower than a year ago. Were it not for the slumping economy, web ad spending would have grown by more than 20 percent, she said.

The reduced forecasts are further evidence that the economic slowdown is taking a bite out of the torrid growth in online ad spending.

For the last several years, Web ad spending has increased 20 to 30 percent annually, fueling the enormous profit growth of Google, the internet search leader.

Last month, Google reported earnings that missed analyst expectations, as the company gave the first signals that it was beginning to feel the pinch from the slumping economy.

Looking ahead, there's no doubt that ad dollars will continue to move away from traditional media toward the Web. That train left the station a long time ago. The only question is how much of a drag the weak economy will be on Web ad spending budgets, before we see a return to the significantly higher growth levels of recent years.