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Google outlook darkens as search ad market weakens

Search giant Google Inc.'s advertising business appears to be under increasing pressure as fewer shoppers search for products online and advertisers spend less.

 Kevin Lee, chief executive of search engine marketer Didit.com, said U.S consumers are "searching less" for various types of products. Lee, who runs one of the largest search engine marketing groups, said search advertising spending by his U.S. clients so far this quarter was flat or down year-over-year, with some clients showing marked drops due to "click supply issues."

"Ad spending is notably lower than we expected during planning last fall. Overall, we would imagine that Google's revenue growth is slowing markedly and if economic contraction continues there might actually be a year-over-year decline," said Lee.

Lee's pessimism was echoed by an advertising agency executive who, asking to not be named so that he could speak freely, said his clients' search budgets are down 10% to 20% in the first quarter.

The observations raise questions about Google's premise that its business is more resilient to a downturn because consumers are increasingly likely to go online to search for the best deals. Google had a 63% share of the U.S search market in January, according to research group comScore.

Susquehanna Financial Group analyst Marianne Wolk added to the gloom Monday, saying in a note that Google's first-quarter gross revenue could be down 5.6% compared with the last three months of 2008, the first sequential decline in the company's history and well below the 7.4% quarter-to-quarter increase reported a year earlier.

These concerns coincided with the release of a survey by the Search Engine Marketing Professional Organization, or Sempo, a trade group, forecasting that North American search spending will rise just 9% to $14.7 billion in 2009 from $13.5 billion a year ago. Sempo's previous estimate, issued last year, had called for the industry to grow more than twice as quickly in 2009.

Shares of Google closed down $17.68, or 5.7%, at $290.89 and are up slightly in late trading to 291.06.

Google declined to comment for this report.

Lee said some consumers are searching more, particularly when they are looking for coupons and deals. But he said that in those instances, the conversion rate from click to purchase is down, probably because shoppers are hunting more aggressively for bargains. That means that marketers' return on investment will inevitably drop, diminishing the key advantage of search marketing.

The situation is dramatically different when it comes to high-priced goods or business-to-business purchases, Lee said."There are just fewer searchers out there in the market for a product or service," he said.

Google Chief Executive Eric Schmidt last week seemed to be suggesting that conditions were getting worse when he declared that the economic situation is "pretty dire" and that his company was "not immune" to current conditions."Everyone is assuming 2009 is a tough, tough year," he said during an appearance at the Morgan Stanley Technology Conference.

Google in January reported surprisingly strong fourth-quarter results that suggested its search advertising business and cost-cutting efforts had enabled it to weather the recession better than rivals.

IDC last month said Internet advertising could fall by 5% in the first quarter, the first contraction in online ad spending since the dot-com bubble burst in 2001. IDC forecast that first-quarter search revenue growth would continue slowing, while display and classified ads will most likely show worse declines than in the fourth quarter of 2008.

Источник: Total Telecom

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