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Originally published Monday, May 19, 2008 at 12:00 AM

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In online world, search ads show staying power

In the past few years, Web publishers have made a big bet on booming online advertising revenues. But the economic slowdown may be throwing...

The New York Times

In the past few years, Web publishers have made a big bet on booming online advertising revenues. But the economic slowdown may be throwing a wrench into those plans.

While search advertising remains strong, there are signs the growth in online advertising — particularly in more elaborate display ads — is slowing down. In the past few weeks, major online-advertising players, like Yahoo and Time Warner, have posted mixed results.

And online publishers may be getting less money for the ad space they do sell. The prices paid for online ads bought through ad networks dropped 23 percent from March to April, according to PubMatic, an advertising-technology company in Palo Alto, Calif.

Large Web publishers fared the worst in PubMatic's study, with the prices they received through networks dropping 52 percent.

Worrisome results

These are only preliminary results, and the economy could turn around more quickly than anyone expected. But these numbers must be worrisome for Web portals, newspaper publishers and news media companies looking to expand their revenues from high-priced display advertising, like graphics-heavy banners and column ads.

"The weakest form, the one that's most susceptible to a downturn — and this is what we're seeing — is display advertising," said Jeffrey Lindsay, senior analyst at Sanford C. Bernstein & Co.

One area that remains strong is search ads. They are considered cheap and effective among marketers — even in a potential recession — and they are how Google makes the majority of its money.

Lindsay, of Sanford C. Bernstein, said recession fears might actually help some media companies, as marketers move their budgets online.

"In a moderate or even quite severe downturn, online advertising actually improves, because people switch their advertising budgets out of traditional advertising formats — TV, radio and print — and move more online because it's got higher performance, it's cheaper and it's more measurable," he said.

He also cautioned that such a boost would only go so far. "If the downturn is so severe that advertisers stop advertising altogether, or face financial difficulties, then online is affected like everybody else," he added.

Spread around

advertising

Some of the ad dollars that in the past went to portals are being spread around instead. Ad networks, which fan out ads to thousands of sites, are adding targeting and are signing up reputable sites, making them more attractive for advertisers.

"There was a time when we would go out and buy inventory on the portals," said Quentin George, global head of digital media and strategic innovation at Universal McCann, which plans media for clients like L'Oreal and Sony.

"Portals make it easier for us to buy and place media on behalf of our clients. But as time continues and as analytics capabilities increase, you find that your media dollars can work better elsewhere across a range of different sites."

Michael Hayes, senior vice president and managing director for Initiative Interactive, which handles digital spending for clients like Home Depot and Bayer, said that advertisers might be turning away from broad buys and looking for more targeted campaigns on smaller sites.

"This is hurting the portals," he said. "There are more options."

A bright spot for these publishers is, if the economy remains sluggish, they may convince marketers that have never spent money online that this tough economy is their chance.

Copyright © 2008 The Seattle Times Company

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