Internet

Online ad spending drops 6.5 percent in third quarter

Internet ad spending has softened in the last three months, marking the first time Web ad sales have fallen quarter to quarter, according to a new study.

Internet ad spending softened in the last three months, marking the first time Web ad sales fell quarter to quarter, according to a new study.

Online ad sales in the third quarter reached $1.9 billion, down 6.5 percent from the previous period, according to a study released by the Internet Advertising Bureau (IAB) and PricewaterhouseCoopers. But sales are up more than 63 percent compared with the third quarter of 1999.

Total sales so far in 2000 are at $6.1 billion, up from last year's tally of $4.6 billion.

"As expected, there has been a slight softening in ad revenue," Rich LeFurgy, chairman of the IAB, an advertising research agency, said in a conference call Wednesday. "Based on revenue we've seen historically...we're still looking at an $8 billion to $10 billion medium" this year.

The figures confirm worries that online advertising is undergoing turbulence--brought about partly by the downfall of countless dot-coms. Fears about slowing ad sales have affected scores of content-related Web sites, which rely on ad spending for growth.

RealNetworks, a maker of Internet media player software, said Wednesday its fourth-quarter earnings will be less than expected based on deflating ad sales.

Online portal giant Yahoo has also been under pressure because of such concerns. As a result, many financial analysts have cut earnings expectations or downgraded the company's shares, which are trading near their 52-week low, down 87 percent for the year.

LeFurgy attributed the slowdown to several factors, including the pullback of advertising by many dot-coms, a traditionally weak third quarter, and a "transition of the advertisers' focus on how to best take advantage of the Internet."

But traditional advertisers are increasingly filling in the holes that dot-coms created. "There is no doubt that traditional advertisers are increasing their online spending, as the $6 billion year-to-date attests," LeFurgy said.

"These savvy advertisers are...seeking different ways and new creative formats, which publishers are offering, to build their brands. This is an industry of innovation, and the serious players are in it for the long haul."

The ad banner, the most widely known advertising format online, also lost some popularity this quarter. Spending on banners went from about 50 percent in the second quarter to 46 percent in the third. In its place, sponsorships and classified advertising rose a few percentage points.

Consumer-related advertising led spending in the third quarter, with computing and financial services following. Retailers and automakers made up the bulk of consumer-related advertising.

Internet ad revenues have climbed since 1996, when the IAB issued its first ad report. In the second quarter, sales reached $2 billion, or 8.8 percent more than the previous period, and marked the 18th consecutive quarter of ad growth in the United States.

"This is still the fastest-growing medium ever, subject to the vagaries of the marketplace, but still recognized by advertisers, both small and large, as the place they have to be to ensure success," said Tom Hyland, chairman of PricewaterhouseCoopers' New Media Group, which conducted the report.