Advertising slowdown hits the Internet

August 6, 2008


The slowing economy is starting to hurt an unexpected segment of the advertising world: the Web, which has been growing fast for a half-decade.

Once thought to be immune from cutbacks, online advertising - especially at Web portals and information sites such as those run by newspapers - is experiencing a slowdown as marketers tighten their belts and make tough decisions about where to spend their leaner budgets. A host of those companies recently reported slowing growth that's expected to linger through 2008.

Complaining about an online-ad slowdown is like griping about a slugger who is on pace for 40 home runs after hitting 50 last year, said David Hallerman, an analyst with eMarketer Inc. His firm expects spending on such ads to grow to $25.9 billion this year, from $21.1 billion in 2007, and hit $30 billion in 2009.

Online advertising is "not going to grow as much as expected, but it's still going to be growing more than other media," Hallerman said.

Some types will be hit harder than others. Although search-engine advertising, which comprised 41 percent of all online ad revenue last year, should remain strong, analysts say, marketers are likely to cut back on banners and other flashy display ads.

As an alternative, companies are creating Web sites for their brands and trying to draw viewers through games, funny videos and prize giveaways. The development may be good for Web surfers, but it doesn't help Web publishers.

"The old model of advertising - you create something and buy the space to put it in - just isn't working," said Fredrik Carlstrom, CEO of Great Works America, a digital agency.

Clients are now asking his firm to engage the audience rather than just flash an ad in their faces, he said, especially with the increased importance of spending every dollar wisely.

Newspaper sites are also being hit by the slump in display ads. In one ominous example, Lee Enterprises Inc., which owns 54 newspapers including the St. Louis Post-Dispatch, said in its most recent earnings report that its online ad revenue had dropped 9.1 percent while print ad revenue fell 10.1 percent.


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