Forecaster drops 2009 online ad estimate by 10 per cent

A marketing research firm is dimming its internet advertising outlook for the next four years, the latest sign of the more austere times looming for the high-tech sector.

A marketing research firm is dimming its internet advertising outlook for the next four years, the latest sign of the more austere times looming for the high-tech sector.

In revisions made Tuesday, eMarketer estimates U.S. advertisers will spend $25.7 billion US on the internet next year — about $2.7 billion US, or 10 per cent less, than a forecast from just three months ago.

The more sobering projections extend through 2012 when eMarketer envisions $37 billion being spent on U.S. online ads. That figure represents a drop of $13 billion US, or 26 per cent, from the 2012 estimates that eMarketer drew up in August.

Since then, the global economy has been rocked by the United States' worst financial crisis since the 1930s. The turmoil has included the collapse of big banks like Washington Mutual Inc. and Lehman Brothers, triggering a steep decline in the stock market despite huge U.S. government commitments aimed at restoring order.

The rescue plan hasn't been enough to prevent mass layoffs and home foreclosures either, pushing the U.S. economy toward its most severe recession in more than 25 years.

The pain increasingly has been hurting technology companies that had been viewed as safe haven until recently. Both analysts and investors reasoned high tech would hold up better than most industries because corporate customers would still want to buy computers and software that helped automate their operations. Meanwhile, advertisers were supposed to be still spending money freely online in hopes of connecting with the internet's expanding audience.

But those perceptions have shifted as more technology companies have acknowledged the tough times are crimping sales. The downturn has prompted already-weak companies like Sun Microsystems Inc. and Yahoo Inc. to resort to mass layoffs, but even stalwarts like internet search leader Google Inc. are pinching pennies.

Bailing out

Investors already have been bailing out of technology stocks, including Google's, which has plunged by 41 per cent since mid-September. Google's stock price fell $4.99 US Monday to close at $257.44 US, near its lowest levels in 3½ years.

EMarketer's new advertising estimates represent an even bigger comedown from another projection the firm made in March. Back then, eMarketer predicted internet ad spending in the United States would hit $30 billion US for the first time in 2009.

Although it's not as optimistic now, eMarketer still expects the internet ad market to grow by nine per cent next year. That would represent a slowdown from an 11 per cent increase projected by eMarketer for this year.

Google should remain the biggest beneficiary because its system for showing ads next to search results is expected to remain an effective marketing vehicle.

EMarketer predicts U.S. search ads will rake in $12.3 billion US next year, up slightly from its August estimate of $11.9 billion.

The internet's billboard-like "display ads" won't hold up as well. EMarketer anticipates online display advertising will rise nearly seven per cent next year to $4.9 billion US, down from its August estimate of a 14 per cent increase to $5.9 billion US.

If eMarketer's projection proves accurate, it would represent yet another blow to Yahoo Inc., which is more dependent on display ads. Yahoo shares gained 82 cents to finish Monday at $10.21 US, but that price is still near the lowest levels since early 2003 — a funk that prompted founder Jerry Yang to agree to step aside as the company's chief executive when a replacement can be found.