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Nearly two weeks after they were released, I still don't quite understand all the fuss that's been made over Yahoo!'s third-quarter earnings figures. Sure, the Web portal's profit more than doubled. Yes, almost 70 percent of its $357 million in revenue came from advertising and marketing. OK, the stock did reach a 52-week high of $43.72 on Oct. 9, the day after the report came out. But are these numbers, as some people suggested, evidence that the online ad industry is finally and suddenly emerging from a deep slumber? Hardly. Here's a news flash: It never went into hibernation. If anything, it took a power nap, only to wake up recharged. "The online ad industry [has been] doing far better than people expect," says Derek Brown, an analyst at Pacific Growth Equities. The general consensus in the Internet industry is that the "recovery" started sometime in the second half of 2002, he says, adding, "Now they're in growth mode." I'm no cheerleader. The overblown promises of the Internet boom left me as jaded as the advertisers who poured millions of dollars into every "next big thing" back in the day. When people wax optimistic about the recent uptick in business, my bullshit meter automatically kicks in. Call it post-traumatic dot-com disorder. You can't dispute the numbers. Last quarter was the sixth consecutive profitable quarter for the Web portal, considered a bellwether of online advertising—evidence that the tide began to turn last year. The Terry Semel-led turnaround did not happen overnight, nor has the Internet's much-heralded "comeback" as an ad medium. "Diversify or die" was the thrust of Yahoo!'s plan—a strategy intended to avoid an over-reliance on online ad revenue. Kudos to the Sunnyvale, Calif., company for posting consecutive double-digit gains in its fees and listings services. But despite its diversification efforts, ad revenue continues to dominate the numbers, largely thanks to paid search. Analysts estimate that Yahoo! derived some $80 million, about a third of its $245 million in Q3 ad revenue, from paid search. That's a whopping 118 percent year-over-year increase in search revenue, according to Morgan Stanley. With its recent purchase of Overture, Yahoo!'s rise undoubtedly will continue. Paid search, which started gaining momentum last year, has contributed significantly to online advertising's recovery. To me, sponsored search is about as sexy as phone-book listings, but it's attractive to advertisers, particularly small to midsized companies looking for a low-cost way to hit consumers during consideration mode. Still, many big advertisers favor the high production values they're used to in the offline world. And more than ever, they can achieve them online. With the growth of rich media, the Internet can now deliver sound and full-motion video. For better or worse, advertisers can create ads that resemble TV spots or even repurpose commercials for the Net. "When someone sees something that strikes them in their gut as advertising, all of a sudden they say, 'We should be doing that,' " Michael Zimbalist, executive director of the Online Publishers Association, told me recently. It's refreshing to see advertisers like AOL, Reebok and Volvo experimenting and taking creative risks on the Internet. These factors and a slew of others—the proliferation of broadband, better metrics, etc.—have all played a part in this ongoing recovery. It's been a series of small successes. Nothing to make too big a fuss over—at least not yet.

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Ann M. Mack

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Ann M. Mack