U.S. online advertising shrinks in Q1

U.S. online advertising spending, which has been key in financing the Web 2.0 wave of Internet innovation, shrunk in the first quarter, the first year-on-year quarterly drop since 2002.

Spending hit US$5.5 billion, down 5 percent when compared to 2008's first quarter, the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) said Friday.

The last time the market experienced a year-on-year quarterly drop was during the dot-com crisis, when spending fell for eight straight quarters, from 2001's first quarter through 2002's fourth quarter.

The 2009 first-quarter drop thus breaks a string of 24 consecutive year-on-year quarterly increases in U.S. online spending that began in 2003's first quarter.

The slowdown in online advertising has been precipitous. Spending grew 35 percent in 2006, 26 percent in 2007 and 11 percent in 2008.

If spending shrinks in 2009, it will be the first annual decrease in U.S. online ad spending since 2002, which recorded a 16 percent drop.

The news is clearly bad for all advertising-supported Internet companies, from big ones like Google, Yahoo, Microsoft, Facebook and AOL, to small startups with ad-dependent sites and Web applications.

The silver lining, according to the IAB and PwC, is that online advertising has been hit less severely than other types of advertising and that growth in this market is expected to resume once the U.S. economy recovers.