Well, I guess this was bound to happen eventually. It’s just the laws of economics playing out. Although huge, there is a finite market for online advertising. In addition, the barrier to entry is surmountable and the payoff for sucess lucrative. First there was Overture and AdSense; now there are many players in this space such as Quigo. (Here is a fairly interesting article about how Quigo is winning business away from Google and Yahoo: http://money.cnn.com/2006/09/1.....2006091812)

I think we tend to become enamored with some celebrity companies and believe that they hold and endless pot of money with little threat of competition. I’m really interested to see the official and unofficial causality analysis for this decline.

From the AP story: “[Sue Decker] cited ‘budget adjustments’ among advertisers in those categories.”

They need to come up with a completely new way of serving ads to turn this negative trend around. Otherwise, they’re going to miss this boat..

Click fraud is everywhere. I ran some ad campaigns for a while, but stopped them completely once I realized that they were a waste of money. Now all of my traffic comes from reliable sources. This is why I believe Yahoo and Google’s advertising systems (pay-per-click) may be doomed.

Advertising online is still big and strong, and growing well - it’s just not as strong as what people who paid $400+ for Google think it is going to be.

“Slowing” should be taken in context; we are still talking double digit annual growth. The issue is that excessive P/E ratios only make sense when growth is not only huge but also steady…

The Web is here to stay with or without Ads. As per internetworldstats.com, as of 9/18/2006, there are 1,086,250,903 using the web. Yes, over one billion people are using the World Wide Web. If companies don’t take the opportunity to reach over one billion potential customers via online Ads, then the companies are the losers. The online Ads are doing companies a favor by bringing companies a new, exciting, robust, and hip medium to advertise on.

The Web is here to stay!

That article about Quigo shows how stupid and ridiculous things have gotten. Paying large publishers for ad inventory ahead of time, betting on a bigger return…..wow revolutionary! Who are you kidding??? and CNN who are you hiring to write for you?

Ad spend online is the place to be, it is completely trackable, but not transparent enough yet. Soon enough

“Is the recent explosion of innovation on the web made possible only by an advertising market that isn’t sustainable?”

I wonder; is it the explosion of innovation that is going to stop because of decreased ad spending or is it this explosion of innovation that is eventually going to save these markets? I ask with some personal interest as The Motley Fool announces the release of its CAPS service.

Stock Market Goes Web 2.0 – Social Networking, Stock Ratings and More! - Motley Fool CAPS

or could it be the beginning of a recession i.e. ad sales are slowing for print. Also commodity and housing prices have fallen. Wiser minds than mine have indicated that the possibility.

Click fraud is always going to exist, but you can build that into your ROI. If you’re still getting a good return from running pay per click campaigns, then click fraud risk may be worth it. I think click fraud has been wildly overhyped lately. This may cause the major players to move to the pay-per-action model which makes click fraud harder to accomplish.

Hey it is ridiculous - nothing last forever especially growth! , Please understand that if any small company had googles growth for 1 year out of the last 5 they would be a success and set for 10 more years! - google is on a different level and so are yahoo, ebay Amazon and etc. So when they say “We are slowing” they mean “WE” are slowing … their slowing is like any other company’s biggest success - Please understand you can bring them to any other scale but their own.

Rbowles - I say google hitting $300 before $400 ; I Was wrong …

When you think about it: we all eat in the same plate. eBay buys ads on Google&Yahoo, AdSense and Panama feed the web 2.0 start-ups. The most successful start-ups -those with their own business model in addition to the sponsorlinks- will prevail and may be bought by Yahoo/Google.

Billbyte: Oil is coming back down, emerging markets are on fire and the global economy is growing 5%+ a year - I don’t think we are even close to a recession (damn that word).

nik….

oil is back down (if you want to call high 50’s down, because bush/republicans couldn’t get elected when it was 75!!

the us economy is either in serious trouble, or doing great depending on who you talk to, and what stats you want to look at…

Hey kids….it’s not search advertising that is the problem but traditional CPM banner advertising from finance (what’s happening to the home refinance business right now?) and automotive (Ford and GM’s problems don’t stop at the Michigan border).

Let’s see what happens to other media properties (online or off) that depend on ad spend from those two damaged sectors of our economy.

Yahoo does have a search advertising problem which I don’t think was part of Semel’s warning today. If that shoe drops (again) look out below.

Yahoooooooooooooaiyeeee

I believe there is a broader economic slowdown, but I also think Yahoo will be harder hit than Google. I am disappointed with Yahoo’s execution, and I dearly wish they would pull themselves together - the world needs them to keep Google honest! Alas, I am not very hopeful. Most of their recent product announcements have been disappointing. They have applied the acquisition band-aid to cover up their lack of execution in engineering, but that only goes so far, and introduces its own set of problems (integration, for one).

I hope the scenario you sketched out (Yahoo gets bought on the cheap) doesn’t come true, but I am afraid it well might. Microsoft, or even a resurgent Time Warner could be possible suitors. That would be a shame …

Nik, agreed. I think that, like most good CFOs, Decker is posturing to soften the blow of a lackluster quarter. In addition, I’d have to say it’s a great short term opportunity for investors of Yahoo stock. Most fluctuations on advertising budgets are systematic of the overall economic trend as this expenditure choice is historically volatile and discretionary for most organizations, as others mentioned. This is a ripple. Period.

just look at a site like this….

http://www.myspacepimper.com/

I bet those ads are converting like crazy for those Yahoo Advertisers.

I own an Internet property, one that’s monetized with ad revenue, so I definitely have an opinion about it as a revenue model in the present market. But moreso, I think that the per click model is dated and a little unrealistic - I’m surprised to not hear about reform or change, especially with click through fraud being such an issue. As a pretty frequent internet user, I’m the average site’s client - I use the Web all the time, on a variety of platforms shopping or talking or whatever, and I can’t think of the last time in the past year I actually clicked on an ad - maybe with exception to on my own platform once to make sure it’s working alright.

I think something similar to a neilson rating would be more appropriate for banner ads online - where you’re not measuring by the amount of people who click but by the amount of eyeballs on hand, which I suspect can be driven by page impressions. Seeing a McDonalds commercial on TV rarely prompts me to go to one of the company’s locations, but I can say I recognize their brand and know where to go if I want that kind of food.

I think the same can be said for Online advertising. We’ll see! It seems heavy disruption in the ad space has a lot turned upside down and it’ll take time before industires start to fully figure out what works now and how to benchmark success.

I have been running tests for my site since it was launched (well…3 months ago!) I haven’t found another model that works as well as PPC …Yes I know there are downfalls to it…but I still don’ t see a better alternative for now.

Next test is blog advertising… I will see if that can produce better results than PPC.

I know this is coming late in the discussion, but here’s my 2 cents:

This whole situation reminds me of Google CFO’s statement that dropped the Google stock temporarily: “We’ll have to find other ways to monetize the business.”

This was stated around Feb. 06 and Google is still doing great… No one scooped them up while they were “weak.”

I agree with comment #5 by Nik, “Advertising online is still big and strong.”

CFOs are humans too and sometimes may underestimate the effects of frank statements. I hardly believe that this statement is a wake-up call of an impending recession.

Ah David, I know - I wish there were another way to measure it. We just started advertising online so it’s going to be interesting to see what we get from that and compare it to our clients.

When I started seeing a huge number of Y! resumes cross my desk at the beginning of the year, I shorted Yahoo. So far I’ve been having a good year…

I love TC, but the quality of the content seems to be declining. Aside from the first paragraph, this post offers little meaningful information about Yahoo’s announcement and went live with spelling errors.

Please don’t kick me out of the Web 2.0.

Although not a large customer like the ones mentioned in the article, I have also started to scaled back on ads through Overture & Google. I was an Overture & Google sponsored search customer the last few years. Recently, I discontinued our Overture sponsored search advertising account while keeping the Google ad account. I continued to utilize Google for keyword based sponsored search as well as text advertising on specific sites via Google. I also began to experiment with Adbrite along the way by placing ads on specific sites for a fixed fee for a fixed period of time. In my particular experience, I have found the ROI via Adbrite to be much better than Google which is more feature rich than Overture but it’s ad control panel also requires a lot of management. Granted, ad distributors such as Adbrite may not have the breadth or reach of Google’s ad platform but it in certain instances it can be a more cost efficient advertising avenue when one is trying to reach a demographic on a very specific website on a fixed fee basis. I really do think the online ad game will become more fragmented as MSN, AOL, and others stake their claims. Gone will be the days where Google and Yahoo dominate the online ad game as they have. Google and Yahoo will always be strong companies but this will no longer be a two pony show.

I don’t (and wont) read TechCrunch for this…stick to web 2.0 stories or risk losing my attention…you are not the wALL sTREET jOUrNAL..

I interviewed with Yahoo recently and I can honestly tell you - the amount of bureaucracy there is astounding.

Also seems like marketers took over the company - from what they indicated, their marketing budgets for simple products such as messenger were ridiculously high. I kept wondering whom it’s targetted at - most people who don’t have messengers join the ones that their friends have.

I also kept thinking - they could develop a couple of solid products with a fraction of that much money… But they prefer to flush it…

Yahoo!s problems are more than just advertising. I think they are now second banana to Google, Amazon, eBay and MSFT. Blaming their problems on a market downturn or lower advertising… not all companies are suffering from this… why is that? Why does Dell complain about slumping sales whil Apple is on a tear? It’s about the brand, products, and innovation. I don’t even see experiements like UnBox or SoapBox coming from Yahoo any more.

Personally, I believe one issue that will plague any site which counts advertising as a huge revenue source is declining ctr over time. I saw this first hand advertising on FaceBook. Last July running ads there was very good for business. That decreased dramatically over time. Ctr went from .5% to .15 and cvrs dropped by 75%.

People are totally sick of blinking crap…me among them. I *never* click on ads. I think another critical mistake is stretching your community out on the rack with too many crappy services that are ploys for more ad revenue.

http://www.markseremet.com

i think this is company-specific. yahoo has become a bloated, bureaucratic place, with far too many overpaid execs. they have lost their edge. semel could whack 20% of yahoo’s cost base, clear out the dead brush a la w at crawford, and end up with a much nimbler and more competitive company.

I’m an advertiser on Google, and it kills me that Yahoo is blowing a golden opportunity. The Google Adwords advertising program recently jacked up their prices by raising minimum bids on keywords for a whole lot of advertisers. Its becoming a lot more difficult and expensive for the little guy to bid on keywords in Google, and a lot of advertisers are leaving Google in droves.

If Yahoo search advertising was any good, they could be making a fortune off of dissaffected Google advertisers looking for a place to spend thier money. Unfortunatly, their system continues to suck, and they don’t seem to be capitalizing on the opportunity.

I’ve been spending more of my advertising money on MSN these days, but their system is still very immature. I keep wishing for Yahoo and MSN to really step up to bat so they could keep Google honest.

“ad revenue is slowing in the *automotive and financial sectors*”

Emphasis mine. The fed’s been on a push these past couple years to raise interest rates, and both sectors mentioned are sensitive to movement in that area. (Both essentially for the same reasons, that more expensive money means smaller budgets for consumers to get big ticket items like cars, or to buy/refi a house, or to invest in the market on margin, or whatever.)

If it was a downturn across the board from every class of advertiser, I’d be concerned, but just these two I don’t think is cause for alarm.

The reason revenues are slowing down is because they have a vastly inferrior product to google.

Things google does good with adsense that yahoo doesn’t:

1. Very intuitive service great user interface.
2. Ad prices become inactive if your bid is too low or if they aren’t clicked on forcing users to bid higher.
3. They make it easier to submit multiple ads.
4. Integration with urchin (analyze.google.com)

The list can go on and on.

As I said again and again - although you may heard of me at first ;-), it’s too weak to depend only on revenue from web-advertisement. Another sustainable revenue source, i.e., new business model is required. If you’re interested, don’t hesitate to contact me.
Almost all the taxi drivers, my good friends, tell me that net business is not real. In Tokyo, the real indicator of economic recovery is to see passengers from construction workers. “Real estate is the basis of real business” It’s the belief of taxi drivers, which I think true partially

yasu, i agree. all my properties have multiple revenue sources built in because I put them in motion before the current little advertising flurry we’re seeing. a year ago? nothing. that’s where my businesses came from.

The problem with Yahoo is Overture. Overture is still stuck in the 90’s and won’t let many advertisers bid on terms. As an example, I have a client that spends over $100,000/month in Google and $3,000 in Overture. Why? Because Overture won’t except bids for terms because they claim they aren’t relevant when they clearly are. Regardless, Google relies on its quality score to weed out terms that aren’t relevant to consumers.

Additionally, Overture’s (Yahoo Search Marketing) product is difficult to use and there haven’t been any enhancements in years. It take me 3x’s as long to submit bids or make bid changes (vs Google) and then they reject 75% of the bids - for 1/10 of the revenue.

And because they’re rejecting so many advertiser’s bids, consumers aren’t finding what they want and are going to Google, MSN and other Search Engines. Google’s keyword tool (which has leap-frogged Overture’s antiquated tool, in fact, leap-frogged light-years ahead) might yield 200 possible listings for a single term, while I’m lucky to find 50 with Overture’s. It’s suggesting to me that fewer people are searching for different terms on Yahoo - or maybe their keyword tool needs to be updated.

Currier - Google doesn’t “raise prices”. If prices are rising in your category, it’s because OTHER ADVERTISERS are bidding up prices or it’s because your quality score has gone down. More likely the former. Google is a Silent Auction and they don’t set prices for any terms but they do have minimum bids — $.01 for a listing, although your ad might not run if your quality score isn’t high enough, i.e. the keyword isn’t relevant, your CTR is low, etc. Look at your competitors and see who’s in the top positions - they’re the ones “raising prices”. There may be a new competitor that’s trying to get into the market.

However, I do agree that there should be more, better competition. It’s hard to believe that they spent so much time and money and built such a buggy, hard-to-use product (to be nice). There system is slow, isn’t intutive and doesn’t work half the time. Not sure how they could NOT improve on what Google and Overture had already built. But, MSN’s AdCenter took away about half of Overture’s volume - so you need to advertising that property.

I understand Overture is coming out with Panama soon, which is supposed to clear up some of the issues, but if they don’t relax their editorial guidelines, advertisers are going to keep deserting themselves en masse. They recently lost ESPN as a Content customer - who’s next? Maybe IVillage? How many advertisers and clients will they have to lose before they wake up.

My clients and I refer to Overture as the Editor Nazi’s. Unless they change that - there doomed to 2nd-tier status or worse.

The issue here is not slowdown in online ad sales. But slow down in america.

The future economic growth is in India, China and Asia. That is were future online ad sales or any industry for that matter should focus for growth.

Only a bad workman blames his materials.

I think the recent slow down in Yahoo’s contextual ads business might not be considered as Google’s victory but rather than it seems that something interesting is going on here as a trend, in my view…

Well, it is obvious that Yahoo and MSN are not any serious treat for Google’s contextual products, but their failure to come up with something that practically, conceptually and technically could beat Google’s AdSense / AdWords is opening a serious gap in that particular niche, which is aggressively being addressed by a number of small but very innovative companies spending serious resources and putting lots of efforts on the semantic web and the artificial intelligence by researching and deploying different web-based, web 2.0-dominated contextual models, methods, concepts, algorithms and business models, etc. etc..

What could be seen in this situation is not that Google attracts Yahoo’s and MSN’s dissatisfied web publishers and contextual advertisers, but it seems they are migrating to a number of small to mid level highly aggressive and innovative contextual products spreading around the web.

It is obvious that the contextual business is heating up on the web and it did not start from yesterday; what we see today as a trend might be a result of those small companies that play significant role on the contextual ads arena…and the recent slow down in the Yahoo’s ad revenues might be seen in the perspective of companies like http://VibrantMedia.com (mouse-over pop-up contextual ads), http://Quigo.com (contextual links, private label contextual solutions), http://LinkStorm.com (menu with contextual links on mouse-over), http://LinkedWords.com (huge web 2.0 contextual platform, free contextual links, free context ads) http://Clicksor.com (contextual advertising), http://Text-link-ads.com (flat-rate contextual links, large inventory), just to name a few…

To conclude, Google is not necessarily the reason behind Yahoo’s slow-down in the ad business. At the other hand Yahoo and other giants are needed on the web to keep Google honest and fair, hopefully.

Interesting approach in how people find and sites manage the web information on a contextual basis, clustering it and rank further could also be http://www.LinkedWords.com

Look for a corralary announcement from google at the end of the quarter beating estimates.

Stephen (#37),

Overture hasn’t released any updates because for years they’ve been trying to release their new Panama product and have poured all engineering effort into it instead of gradual enhancements to what they have. As any reader of Joel on Software knows, rebuilding a product from scratch rarely results in the accelerated launch schedule and simpler architecture that you anticipate.

Hopefully when it is released they will do a bit of catching up with Google’s nice (but overly complex) Adwords tool.

I sincerely hope that some of the smaller CPC/CPA networks get their act together and start attracting a more diverse suite of advertisers and publishers, or start building unique tools that go beyond the standard ‘bid for a keyword’ model. It would be great to have a number of high-value ad networks for a publisher to participate in and reap the bucks from.

As for the minimum bid price increases that the other poster was referring to, he was right: Google actually did announce an increase to minimum bids. Here’s some information about it: http://www.searchenginejournal.com/?p=1912

- Tom

As a couple of other commenters have mentioned the slowdown in the mortgage and auto finance markets. I think this is particularly relevant because yahoo has a lot of exposure there. The internet ad market is going great guns right now though and pay-per-click is a big part of it and will continue to be. No, nothing lasts for ever, but the 30 second TV commercial is still important and it’s now been with us for several generations. I think the current online ad models have a long and healthy lives in front of them.