Growth in online advertising falls

A clutch of Q3 results are due in the next three days, with Google key among them. It is seen as a bellwether of the internet, and it's last quarter results were disappointing: revenue increased by 39% to US$5.37 billion (€3.967 billion), less US$1.47 billion in traffic acquisition costs. Analysts had expected revenue to hit US$3.9 billion and Google's shares fell 8%.

Indications from elsewhere suggest trading conditions in Q3 might have been a lot tougher and this isn't just bad news for the likes of Google, Yahoo and Microsoft, whose main source of income is paid-for search, but for the many media and other companies looking to the web for additional sources of income in hard times. In fact, everything that underpins Web 2.0.

In September, analyst Enders said it estimates the UK's online display advertising market grew by 18.5% in 2008 to £3.3billon (€4.21 billion) instead of the predicted 28%. The analyst said this was largely due to less advertising from recruitment, property and financial companies.

It expects much worse to come, with revenues becoming flat or falling. Enders also delivered another blow - only 5% of online advertising is brand building, which is often wheeled out as being on of online's advertising's big success stories.

The view across the Pond isn't cheering either. Nielsen reported a decline in the first half of 2008 for US picture-based advertising. It showed a 27% drop in US financial services' advert spending, the largest advertiser group online. Video ads are apparently holding up - so far.

However, necessity is the mother of invention and already advertising is looking at new ways to make money. At the virtual goods summit in San Francisco last week, Viximo burst upon the scene.

It's business model is to provide a virtual goods network in the same way that online ad networks distribute and place ads. The plan is to create a hub of those who develop virtual goods for all kinds of web sites, including social networks, gaming and dating, and as part of email and chat activities.

Viximo will provide a storefront, goods and payment processing for the retail sites and the share revenue with the advertisers - perhaps Cadbury's or Lindt's branding on a virtual bar of chocolate or a dog food brand on the ribbon around a puppy's neck‾

The stat batted around the summit was that virtual goods are well on the way to becoming a US$1.5 billion (€1.08 billion) global market. The Financial Times quoted Viximo's CEO, Rob Frasca, pointing out that Facebook makes US$35 million annually on virtual gifts, while Gaia Online and IMVU were selling $1m a month of virtual goods from puppies to lightning bolts.