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Internet advertising grows slightly, but analysts worry about the future

Stock market

Well, there's one thing that can be said about the new online advertising numbers released by the Interactive Advertising Bureau today: They could have been worse. Unfortunately, analysts say they probably will be soon.

Internet advertising revenue in the U.S. for the first half of 2008 totaled $11.5 billion, up 15.2% from the same period last year. Not so shabby, right? But when you consider that in 2007, revenue in the first half of the year was up 27% from the same period the previous year, and that in 2006, revenue climbed 36% from the previous year, the growth numbers aren't that impressive.

"From what I see, this is a similar pattern to the last slowdown in 2001," said David Silverman, a partner in the entertainment, media and communications practice at PricewaterhouseCoopers, which worked with the IAB to come up with the numbers. Silverman said that the second half of the year typically sees more spending than the first half. But this year, he said, this may be different "given the continuing slowdown and economic conditions."

Search continued to dominate online spending, accounting for 44% of money spent advertising online, up from 41% the previous year. Spending on classified advertising, at $1.6 billion, fell to just 14% of the pie.

Still, online looks positively healthy when compared with other sectors of advertising. ZenithOptimedia today cut its forecasts for the overall U.S. advertising market in 2008 and 2009, predicting growth of 1.6% this year rather than the 3.4% it had initially projected. In 2009, ad spending in the U.S. will grow less than 1%, the firm said.

"All advertising is somewhat depressed, and online advertising has fared better than average," said Joe Apprendi, chief executive of Collective Media, a New York-based online advertising firm. "It's going to grow, which isn't the case with all media."

Meanwhile, media mogul Barry Diller tells the Wall Street Journal that thinking about the online advertising market is a good way to develop a headache.

WSJ: Companies have struggled to make money in online video and social networking. What is the outlook for advertising in these areas?

Mr. Diller: You really want to get a headache? Try to understand Internet advertising. Social networking advertising is being discounted because there is so much inventory [of available ad spots], and because methods have not yet been found to make it very effective. Will that get figured out? I absolutely believe it will. What form will it take? Absolutely unknown.

-- Alana Semuels

Photo by Ahn Young-Joon / Associated Press

 
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