US online ad growth slows in 2008's first half

The growth in U.S. online advertising spending slowed down significantly in the first half of 2008.

U.S. online advertising, the motor that fuels most Internet companies large and small, including Google, Yahoo, Facebook and MySpace, has seen its growth lose significant speed in the first half of this year.

Compared with the first half of 2007, online ad spending grew 15.2 percent to US$11.5 billion in the U.S., the Interactive Advertising Bureau (IAB) announced Tuesday.

That growth rate is significantly reduced from the 27 percent increase recorded in the first half of 2007, compared with the same period in 2006.

And in the first half of 2006, online ad spending grew even faster, at a 37 percent clip over the same period in 2005.

Nonetheless, the IAB called the growth rate in the first half of 2008 "strong" considering the economic upheaval and its detrimental effect on the advertising industry as a whole.

However, the considerable deceleration in online ad spending growth might be cause for concern, considering the online advertising boom of the past five years has led to a lot of innovation and investment in Web services and technology.

Online advertising has allowed Google to grow into one of the world's most important companies and to extend its scope beyond search to challenge Microsoft in business software and to shake up the mobile market with various initiatives like its Android platform, among other things.

The high growth online advertising climate had a direct result in the development of a new generation of community-focused, Web-hosted services like video and photo sharing, online music streaming, blogging, wikis, syndicated feeds, social networks and social news, to mention a few.

Many of these Web 2.0 services that were originally designed for and adopted by consumers are now finding their way to the workplace where they are being applied to a variety of processes like sales, marketing, customer support and internal communication and collaboration.

The good news for Google is that search advertising not only remained the largest ad format but actually increased its piece of the spending pie from 41 percent in the first half of 2007 to 44 percent. Display ads, such as banners, digital video and rich media, accounted for 33 percent of the spending, increasing their market share 1 percentage point. The classifieds format saw its pie shrink from 17 percent to 14 percent of the total.

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Juan Carlos Perez

IDG News Service
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