Online Ad Revenues Up: Is the Worst Over?

With Time Warner reporting earnings Wednesday, we now have online advertising numbers for the fourth quarter from the four largest players: Google (GOOG), Yahoo (YHOO), Microsoft (MSFT), and AOL. Tallying up their online advertising revenues provides a decent proxy for the health of the overall online advertising industry as a whole, since they represent a majority of those revenues. (For comparison, see IAB numbers for the U.S. only). After a full year of slowing growth, their combined ad revenues actually picked up in the fourth quarter, showing a 3 percent rise compared to the third quarter. Combined revenues grew 8 percent on an annual basis.

Like everyone else, I’ve been expecting to see continuing pressure on Internet advertising. In the third quarter, the sequential growth of the combined ad revenues from these four companies ground to a halt, going from 12.7 percent sequential growth in the fourth quarter of 2007 to 0.6 percent in the third. (All growth rates are quarter over quarter, unless otherwise noted).

What the slight rebound in growth tells us is that search advertising may be making up for the continued weakness in display advertising, which each of these companies acknowledged in their conference calls. The question is whether sequential growth will remain in this low range for the rest of the year, or whether search advertising can push it higher. One quarter’s worth of data is not enough to make any conclusons on that front, but at least these numbers provide a ray of hope.

The combined ad revenues totaled $8.5 billion in the fourth quarter, up from $8.2 billion in the third quarter and $7.8 billion in the fourth quarter of 2007. Google continued to dominate, accounting for 65 percent of those revenues, up from 61 percent from a year ago but slightly down from its 65.3 percent share in the third quarter. Google contributed slightly more than half of the growth. Yahoo’s 19.1 percent share of revenues went up quarter-over-quarter by the same amount that Google’s went down (0.3 percent). Microsoft’s $866 million in online revenues gave it a 10.2 share, up from 9.4 percent in the third quarter. And AOL’s advertising revenues remained flat at $507 million, giving it a 6.0 percent share (down 0.2 percent).

For the purposes of this analysis, I took the total advertising revenues from both Google and Yahoo, including their network revenues paid to affiliates, the online revenues reported by Microsoft, and only the advertising portion of AOL’s revenues. The revenue share figures above are rounded. Below are the absolute revenue numbers, broken down by company:

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Comments

[Nick Waddell:]

AOL still exists?

Feb 05 12:15 PM

[Jake Berzon:]

The real gauge of trends in advertising will be the first half of 2009. Q4 2008 results were salvaged by clients completing their ad buy commitments for the year and spending the last of their 2008 budgets. Much of this was finalized in Q4 of 2007.

Feb 05 01:09 PM

[Jason Rines...:]

I am in digital media in health and higher ed. There is ample opportunity for companies to solve market problems for clients on performance models utilizing the beat up display industry. But CPM display advertising won't return anytime soon. Clients I speak with have axed the budget for entire year but love the risk-sharing performance model we built years ago. Now it's just time to enjoy being a fundamentalist for a change.

Feb 05 01:19 PM

[Maxi:]

We need to see how these companies do in 2009, numbers you are talking about are or mid 2008 when economy was not that bad.

Feb 05 11:10 PM

[Tradememe:]

Perhaps a comparison of online ad revenues with newspaper and TV ad revenues could help. Nowadays, marketers can't afford not to get results from their ad dollars. And so far, only online ads can provide that quantifiable metric.

Feb 05 11:37 PM

[Rafael Grillo:]

In a tough economic situation, advertisers indeed cut their advertising budgets. But they don’t eliminate them. They can’t afford to. They need to keep selling! If any, as an advertiser you re-direct your reduced budget to the most effective touchpoint you have available. If you had campaigns going in different mediums, you focus on the most effective ones and cut the rest. Search advertising raises to the top in a situation like this. And If you had campaigns going in Google, Yahoo and Microsoft, you cut the last two and put all your money behind Google. I expect to see an increase in Google's share in the forthcoming quarters.

Feb 09 06:02 PM