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Online Ad Market Could Shrink 5% in Q1, First Contraction Since Net Bubble

A grim estimate indeed. Researcher IDC writes that the US online ad revenues may contract as much as 5% in the first quarter, the first time industry revenues have shrunk since the dreaded aftermath of the dot-com bubble in 2001. The drop off is also likely to be worse in Q2, IDC says. The one bright spot is that worldwide advertising is expected to continue growing.

What gives in the U.S.? The all-important fourth quarter results were much worse than expected as advertisers cut back on brand advertising and display ads and on classifieds. That’s a bad set up for the first quarter, which traditionally sees a pullback.

Q4 sales rose just 0.4% to $7.13 billion from $7.10 billion in the year-ago quarter. Search still grew, up 10%. But display ads took a beating, dropping 7%. Classified ads were down 18% because of the turmoil in the housing, job and auto markets and —this is interesting—because of eBay’s continuing weak performance.

These declining trends are likely to continue in Q1, IDC says. And search will have a hard time as the only growth market keeping overall sales growing.

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