Majestic Research

The Wall Street Journal

For Google and Yahoo, it's a Click Conundrum

By Kevin Delaney
Published: January 29, 2008

Investors have been betting that Internet ads will be immune to any broader advertising weakness. Maybe it’s time to reconsider.

Internet firms and online-ad experts see companies continuing to shift ad dollars online. They also see boosts from the Olympics and presidential election. But recent data on Web-search ads raise questions that Yahoo and Google might address when reporting earnings today and Thursday, respectively.

The data comes from comScore Inc., which last week reported a 7% decline in the number of times U.S. consumers clicked on ads appearing alongside Google’s search results in December compared to November. That contrasts with a 6% increase in 2006 from November to December.

“This whole idea of the Internet not being as impacted and Google not being as impacted was really holding up well until December,” says John Aiken, managing director of Majestic Research Corp. in New York. "Then we started to see a rate of deterioration that was faster than what you’d normally expect.”

It could be part of a U.S. consumer slowdown. But comScore’s James Lamberti cautions against reading too much into one month’s numbers. ComScore says Google has had soft Decembers. Moreover, many analysts still see strong search-ad spending internationally, and some predict U.S. search revenue will rise as advertisers increase what they’ll pay per click.

Still, some industry executives acknowledge they’re not immune to the economy. Microsoft’s Avenue A/Razorfish unit says spending by its clients on search ads increased 31% in the fourth quarter from the third. Yet Jeff Lanctot, its senior vice president, says, “there’s a possibility that the search category softens if people are searching and clicking less.”