SNL Kagan Report Shows Web Revenue Decelerating

Display advertising is hurting. Search should be accounting for an even larger share of the market this year as performance advertising rules the day. And online video represents a bright spot in the online ad market.

Those are a sampling of several familiar conclusions drawn by SNL Kagan in its newly issued report Economics of Internet Media. In its report the researcher offers a somewhat rosier outlook on the online advertising business in 2009 compared to other companies tracking the space. But for the most part, SNL Kagan echoes what many analysts have been saying for late: revenue growth has decelerated significantly, but the medium is faring better than most during the ongoing recession.

SNL Kagan predicts that online ad spending will increase by 6.2 percent to $24.6 billion this year. That represents a higher growth rate than was recently issued by digital industry analyst eMarketer, which issued a revised forecast of just 4.5 percent growth last month.

However, like most analysts following the online ad space, SNL Kagan foresees display advertising taking a big hit as more brands focus on performance-based advertising on the Web during this track-every-single-dollar era. That should be a win for search advertising, which the company predicts will account for a whopping 45.3 percent of online ad revenues in 2009, up from 44.1 percent last year. Conversely SNL Kagan anticipates display ad spending to climb just 4.6 percent this year, versus a surge of 11 percent in 2008 and 21 percent the previous year.

Meanwhile, despite the highly fragmented online audience the Web’s biggest portal continue to dominate the online ad landscape, found Kagan, as Google, Yahoo, Microsoft Corp. and AOL accounted for some 57 percent online ad spending this year. However, perhaps because of their relative strength in search and performance advertising, Google and Yahoo are expected to endure the recession better than their competitors, said the report.

SNL Kagan, as have several other researchers, cites online video as a bright spot this year, fueled in large part by the proliferation of professional, ad-friendly content on sites like Hulu. The company’s report forecasts that online video advertising, while building from a smaller base, will enjoy a compound annual growth rate of 26 percent over the next decade, soaring from $978 million in 2009 to $9.9 billion by 2019.