Online Advertising: A Glimmer of Light?

The rest of the economy may be tanking, but online advertising in the U.S. posted big year-over-year gains, according to the New York City-based Interactive Advertising Bureau and PricewaterhouseCoopers.

Internet advertising revenue reached nearly US$5.9 billion in the third quarter, an 11 percent increase compared to the same period the year before. However, the news on a sequential quarterly basis was less spectacular.

Online advertising revenue in the third quarter was up just 2 percent over the second quarter, IAB reported.

For the first nine months of 2008, online ad revenues totaled $17.3 billion, up from $15.2 billion during the same period in 2007.

The growth in online ad revenue didn't do anything for Google (Nasdaq: GOOG) or Yahoo (Nasdaq: YHOO) stock. In late-day trading on Thursday, Google's shares were down nearly 4.5 percent to $267.40, while Yahoo's shares were down .4 percent to $9.10. Both companies rely heavily on the online advertising sector for revenue.

Ads Moving to the Web

The steep rise in Internet advertising revenue over the last year indicates more and more marketers are turning to the Web at a time when the global economy is drastically slowing down and the costs associated with traditional modes of advertising -- print, radio and television -- are on the rise.

"I think what we're seeing here is difficult economic conditions," said David Doty, senior vice president of thought leadership and marketing at the IAB.

"In a recession, everyone feels pain," he told the E-Commerce Times, "but we continue to see from our members that the recession is accelerating the shift from offline to online ads."

One of the advantages online advertising has over traditional advertising is that it is much easier to determine whether it's reaching the targeted audience.

"Advertisers can see a demonstrable [return on investment] on their dollars using search," Doty said. "When advertisers want to see clear results, efficiencies and effectiveness, they shift spending from offline to online -- because that's where they can measure it better."

The shift in advertising trends has forced some print publishers to drastically change the way they do business, Doty noted.

"It's important to remember that publishing companies are reinventing themselves," he said. "There was yesterday's news about PC Magazine going online-only. There's a relatively healthy environment in online advertising."

PC Magazine isn't the only established publication to shift to the Web. In late October, the Pulitzer Prize-winning Christian Science Monitor announced it would end its print publication in favor of an online edition and a weekend print magazine next spring.

Muddy Picture for 2009

Despite the year-over-year revenue gains in the online advertising sector during the third quarter, the outlook remains uncertain.

"I think that we're definitely seeing a slowdown in advertising, but search is holding up better than other forms because it's transactional in nature," Steve Weinstein, an equity analyst at Pacific Crest Securities, told the E-Commerce Times.

"We won't know until the middle of December," he said. "We know that October was slow, but so little of the quarter is done in October, that it's hard to predict how the quarter will ultimately look."