Headlines Aside, Internet Advertising Growth Has Stalled

 |  Includes: GOOG, YHOO
by: Yankee Group

By Carl Howe

The Interactive Advertising Bureau noted yesterday that U.S. online advertising passed $4 billion in the third calendar quarter of 2006 (its eighth straight quarter of positive growth). Commentators like AOL's Jason Calcanis are trumpeting this as the harbinger of 20 years of growing advertising support for Web 2.0 business models.

Well, I'm a big fan of online advertising, but I'm skeptical of this point of view of 20 years of continuous growth. We don't yet have Blackfriars' actual numbers for Q3 yet; the fourth quarter survey is currently in the field. But what I found most interesting were not the absolute values (we project online advertising budgets for the year to be $38 billion due to methodology differences), but the growth figures:

The 2006 third quarter revenues represent a 33 percent increase over $3.1 billion in Q3 2005 and a 2 percent increase over the Q2 2006 total of nearly $4.1 billion.

A two percent gain over the previous quarter is about as tepid growth as you can get. And Blackfriars' numbers for Q3 budgets -- not actual spending, but what companies planned to spend -- actually shows online advertising falling from Q2.

The bottom line: online advertising will be a useful marketing tool, but no trend goes in a straight line for twenty years. Online advertising will grow by leaps and bounds so long as it delivers commensurate results for businesses in the midst of today's tyranny of too much. But just as with email advertising, its growth carries the seeds of its own destruction. And when online advertising overwhelms viewers to the same degree as today's spam-filled inboxes, marketers will move on to the next technique that gets results.