IDC forecasts first U.S. ad spending contraction since 2001

U.S. online ad spending will shrink year-on-year in the first quarter for the first time since 2001, according to IDC.

More bad news for advertising-supported Internet and media companies like Google, Yahoo, Facebook and MySpace: IDC is predicting that online ad spending in the U.S. will shrink year-on-year in the first quarter for the first time since the dot-com bubble burst in 2001.

In preliminary results, IDC said Wednesday that U.S. online ad spending was essentially flat in the fourth quarter of 2008, as search ads increased 10 percent while display and classified ads fell 7 percent and 18 percent, respectively, compared with the same quarter in 2007.

"All of this does not bode well for the current first quarter," IDC said in a statement. In fact, U.S. online ad spending may shrink in the second quarter of 2009 as well.

IDC is calling its forecast for 10 percent growth in U.S. online ad spending in 2009 "too optimistic" and suggests it will revise it down, given the latest data it has collected, when it issues its next forecast in late March.

While in the fourth quarter of 2008 the increase in search ads offset the bad performance of display ads and classifieds, the first quarter will likely see a slowdown in search ads, while display ads and classifieds plummet further, IDC said.

"All in all, we believe U.S. Internet advertising revenue could contract by as much as 5 percent in 1Q09 [compared to 2008's first quarter]. And things may get worse in the second quarter," IDC said.

Fortunately, there is light at the end of the tunnel, as IDC predicts that things will start to turn around in mid-2009 and begin a slow recovery from there.

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Juan Carlos Perez

IDG News Service
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