Recession watch: online advertising

01 May 2009

LONDON/WASHINGTON: Online advertising, and search in particular, is expected to be one of the few mediums to enjoy any meaningful growth this year, but the start of 2009 has demonstrated it is not immune to the broader slowdown affecting the ad industry.

The search sector can be said to be facing its first recession, having not fully established itself during the dotcom crash, while the web as a whole has also becoming an increasingly integral part of advertisers' strategy since then.

However, Eric Schmidt, ceo of Google, argued that even the search giant was "feeling the impact" of the downturn in the opening months of 2009.

In evidence of this, the Mountain View-based pioneer posted its first ever quarterly decline in revenues in Q1, down 3% to $5.51bn, with display spending also static on a year-on-year basis.

Its rivals have also continued to struggle, with AOL registering a 23% decrease in revenues to $867m in the first quarter, including a decline of 20%, or $109m, in advertiser spending.

The company reported that ad sales were down "on third-party internet sites, as well as display advertising and paid-search advertising on AOL Network sites," and Time Warner has now stated its intention to spin off the ailing unit.

Yahoo also saw its profits tumble by 78% in Q1 to $118m, with search sales off by 3%, and display by 13%, as total revenues fell 13% to $1.58bn.

Microsoft, which has long been mooting a tie-up with Yahoo, has similarly struggled to make an impact on Google, and its online arm's sales fell by a total of 14% to $721m from January to March this year.

While the travails of these companies could be said to be a consequence of the downturn hitting more advanced nations, it is also observable that some major portals in developing markets are seeing a decline, albeit a relative one.

Baidu, China's biggest online search engine, enjoyed a 41.5% annual increase in advertising revenues to $11.8m in Q1, with operating profit up 34.7% to $29.1m.

However, within this, it reported that its number of customers actually declined by 6.1% compared with the previous quarter, with the annual revenue per customer also falling to $644 in the same period.

Sohu, another Chinese operator with international aspirations, saw an upturn in advertising revenues to $46.6 million on an annual basis in its last reporting period, marking an improvement of 38% year-on-year.

This, however, masked a slowdown on its growth rate of 62% during the previous quarter, and also constituted a decline from ad revenues for $58.4m over the same timeframe.

Rediff, one of India's largest search services, also saw its revenues decline by by 33% in the final quarter of last year, posting a net loss of $2.75m overall.

This included a drop off of 41.5% in ad revenues, which the company argued resulted from the decline in "travel, jobs, credit card, and real estate sectors."

Data sourced from WARC Online/company reports