Citi: Online Ad Market Fading Fast

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Display advertising is declining faster than expected and marketers are holding back on spending in 2009 because of growing economic uncertainty, according to a new report by Citi Internet analyst Mark Mahaney.

Based on insights gained from last Friday's AdRevenue 08 conference in San Francisco, Mahaney suggested that the online ad market is in worse shape than previously imagined.
"October spending in display saw a sharp deceleration from September as advertisers continue to worry about the macro environment," he wrote. "Premium, guaranteed advertising, especially, has been highly impacted across all verticals."

A separate analysis by TechCrunch of online ad revenue of the top four Web companies--Yahoo, Google, AOL and Microsoft--showed only 0.6% growth in the third quarter, down from 12.7% growth in the fourth quarter of 2007.

Citi only last week revised its 2008 Internet ad forecast downward from 16.1% to 11.4%, and its 2009 outlook from 14.1% to 5.8%. Anecdotal information picked up at the AdRevenue conference suggests that estimates could be lowered again in the coming months.

On the bright side, ad budgets are shifting from traditional media (mainly print and radio) to performance-based display ads, ad exchanges and search advertising. Citi predicts ad exchanges and ad networks to benefit from that trend into next year. Even so, the report noted that publishers complain about too many ad networks claiming to do similar things.

"As such, there appears to be a flight to quality and to vertical ad networks, especially as marketing budgets become constricted in the current macro environment," it stated. With more than 300 ad networks in operation, industry observers are already projecting that the downturn will force the category to contract.