Rough times ahead for online advertising?

CNET published an article about the state of online advertising with opinions from a couple of analysts.

Cowen analysts Jim Friedland and Kevin Kopelman lowered their estimates on several firms such as Google, Yahoo and Amazon because of the worsening economic climate. The two analysts expect search-advertising spending will be flat, and that graphical display ads might shrink:

“We continue to believe that paid search-ad budgets will remain intact, based on our previously published analysis on the historical experience of direct-mail budgets during recessions. However, we think the growth of paid-search budgets–and therefore Google’s revenues–will be lower than expected, as smaller overall ad budgets will limit the ability of advertisers to meaningfully increase search spend. We also believe that display advertising could experience negative growth (we are projecting mid-single-digit growth in 2009), which would weigh heavily on Yahoo,” the analysts said.

Analyst Colin Gillis from Canaccord  says display advertising, which is mainly used for branding, is under siege and suggests that Google might ‘squeeze’ its Google AdSense partners to keep its profits high. Gillis believes the search giant hit plenty of room to squeeze extra profits out of its partners because there’s little competition in the CPC advertising game:

Google also has the luxury of being able to squeeze commissions called traffic acquisition costs, or TACs, paid to partners that carry Google-supplied ads. “Google has plenty of room to squeeze TAC rates, given its market share and positioning. It is unlikely network publishers switch to other providers–and this provides the company with an additional lever that can be used to clamp down on expenses, in addition to headcount reductions (or hiring reductions) that would offset weakness,” he said.

It’s hard to predict the future but it’s a safe bet that it’s going to get harder to earn to get ad dollars. Personally, I’ve already seen my income decline quite a bit compared what I averaged last year and I don’t think there will be much improvement anytime soon.

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