Krishna Srinivasan’s Blog

Google, Yahoo and other Internet companies fueled by online ads could well suffer in a recession, analysts say, but they expect the online ad market might hold up better than other media.

Soaring online ad growth has made Google GOOG a business juggernaut, while also adding to the coffers of other Internet companies.

In a recession, spending slows most everywhere, analysts say.

Investors haven’t had to be reminded. Google shares have fallen nearly 20% this year and are down nearly 25% since hitting their all-time high in November.

Investors are nervous because Google, Yahoo YHOO and others get a lot of their ad dollars from the financial, real estate and retail sectors, Standard & Poor’s (NYSE:MHP) analyst Scott Kessler says.

“Google has been one of the worst performers over the last week because people are concerned,” he said. “They don’t know how Google is going to fare amid this economic downturn.”

Investors will get a better handle on things when Google and Yahoo release fourth-quarter results on Thursday and Tuesday, respectively. Paid search has been a boon for Google. Analysts expect the company to report fourth-quarter revenue of $3.44 billion, minus the traffic acquisition costs it pays partner sites that carry its ads. That would be up 54% from the year-earlier quarter.

Google gets 98% of its revenue from ads tied to its online search service. Paid search is the fastest-growing segment of the multibillion-dollar online ad market. Yahoo also gets most of its revenue from online ads. Yahoo and Microsoft’s (NASDAQ:MSFT) MSFT MSN have been ramping up their paid search operations, looking for a bigger slice of that pie.

Paid search ads have become especially popular among smaller businesses because advertisers pay only when a consumer clicks on an ad. In a recession, ads from smaller businesses could become an Achilles’ heal for Google, says Barry Parr, an analyst for Jupiter Research. full story

Scott Cleland, an analyst at the Washington, D.C. based telecom research group Prescursor has published a 35 page paper “Googleopoly: the Google-DoubleClick Anti-Competitive Case”. The paper argues that the US Federal Trade Commission will block Google’s $3.5 billion acquisition of DoubleClick on the basis that it will allow “Google to dominate online advertising and dramatically increase the opportunity for market collusion and price manipulation in the market for consumer click data, ad-performance tools, ad-brokering and ad-exchanges.”

Those interested can read the full report here. The stand out portion of Cleland’s report is how he describes Google dominance of the online advertising market post acquisition:

To equal Google-DoubleClick’s level of market concentration in the intermediary online advertising market, one single financial services company would have to own:

* The top 15 Wall Street banks/asset managers;
* ~60% of the hedge fund and private equity industries;
* The New York and London Stock Exchanges;
* The two leading providers of financial analytical tools: Bloomberg and Factset;
* Two of the three national providers of credit profiles: Experian and Equifax; and
* ~60% of the Federal Reserve’s and U.S. Census Bureau’s raw market and consumer data. More>>

Google (GOOG) has begun testing text ads on cell phones, offering publishers a way to make money off of their mobile sites, the company confirmed to The Utility Belt moments ago.

What is Ads for mobile?
Well it kind of does what it says on the tin, Ads for mobile allows publishers to place ads contextual advertising on website designed for mobile (cell) phones to monetise that traffic.