Mixed outlook for US online advertising

The US online advertising market continued its rapid growth in the first half of this year, although some changes in buying patterns, together with Yahoo’s recent warning about an advertising slowdown, could point to a more mixed picture ahead, according to analysts.

The Interactive Advertising Bureau, whose figures are widely followed, said overall online advertising in the US, the world’s largest market, rose 37 per cent from a year before, to $7.9bn.

However, with advertisers shifting to others forms of online activity, such as classifieds, referrals and lead generation, the share of display-related advertising fell from 34 per cent of the total to 31 per cent, said Scott Kessler, analyst at Standard & Poor’s.

The declining share of display advertising could point to one reason for Yahoo’s warning, which was based on ad sales in the past few weeks, said Mr Kessler.

Yahoo’s cautious comments have raised questions about whether a broader slowdown in online advertising is under way, or whether it is losing market share to rivals.

Mark Mahaney, internet analyst at Citigroup, said that Yahoo is more dependent on advertising by economically sensitive industries than other internet companies, making it more vulnerable to a slowdown in these sectors.

Yahoo accounts for 54 per cent of all online financial services advertising in the US and 34 per cent of automotive advertising, he said, quoting figures from Nielsen/NetRatings. Yahoo blamed these sectors in particular.

While display advertising appeared to have seen slower growth than other segments in recent months, it was still unclear what impact a broader economic downturn would have on the industry, said Mr Mahaney.

Search advertising, which continued to represent 40 per cent of all online advertising in the first half of the year, is heavily dependent on small businesses, while large companies tend to focus their spending on display.

If small companies cut back on advertising spending faster in a downturn, that could leave the search business facing a bigger downturn, Mr Mahaney added.