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Thursday, November 16, 2006

Internet Ad Revenue Slows: Where Will MSN, Yahoo!, And AOL Go?


Internet ad revenue grew 33% year-over-previous-year in the third quarter. It hit $4.2 billion for the three month period.

That is the headline and the Internet Advertising Bureau is sticking to it. But, from Q2 to Q3, the number was basically flat. Q2 internet ad money was $4.1 billion.

There are two ways to look at the numbers. One is that revenue is still growing at a reasonable pace. The other is that it is hardly growing at all. The figures from Q4 will tell the tale as holiday marketing dollars pour into all media, and the internet sees if it can post a strong pace over Q3 2006 and Q4 2005.

Quarter-over-pervious quarter numbers are actually fairly dismal. Old Terry Semel, CEO of Yahoo! says that the market is underestimating what will happen with internet marketing dollars as more money is spent on video and social networks. He had better hope so.

While Google is operating almost exclusively in the text based ad end of the internet, Yahoo!, AOL, and MSN has to fight for the banner and button ads that he been the mainstay of online marketing money for several years. Yahoo!'s stock has taken a beating as its revenue from advertising has slowed. The AOL move from subsription-based revenue to advertising depends on a robust market. Time Warner says it can increase ad revenue faster than the market as a whole. But, if the overall market is slowing, that may be cold comfort. Microsoft, which actually lost money in it online businesses last quarter will also depend on a strong online ad market to restart its efforts at MSN.

A rising tide lifts all ships. But, that only works if the tide is rising.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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