In addition, Web viewers have become accustomed to the display ads splashed across the top or side of a page and don't click on them as much as they did in the early days of the Internet, said Ken Deutsch, media director at Long Beach ad agency Grupo Gallegos.
As an alternative, companies are creating websites for their brands and trying to draw viewers through games, funny videos and prize giveaways. The development may be good for Web surfers, but it doesn't help Web publishers.
"The old model of advertising -- you create something and buy the space to put it in -- just isn't working," said Fredrik Carlstrom, CEO of Great Works America, a digital agency.
Clients are now asking his firm to engage the audience rather than just flash an ad in their faces, he said, especially with the increased importance of spending every dollar wisely.
In addition to portals such as Yahoo, Microsoft Corp.'s MSN and Time Warner Inc.'s AOL, which charge premiums for ads on their home pages, newspaper sites are also being hit by the slump in display ads.
In one ominous example, Lee Enterprises Inc., which owns 54 newspapers including the St. Louis Post-Dispatch, said in its most recent earnings report that its online ad revenue had dropped 9.1% while print ad revenue fell 10.1%.
Mike Darrow, the executive vice president of sales and development at Edmunds.com, said advertisers were moving away from display advertising on the car site. Instead, he said, they're looking toward "integrated contextually relevant positions" -- for example, pages that let consumers browse for sedans will have three vehicles "spotlighted," with a small label defining them as "sponsored content."
Edmunds Inc. is vulnerable to an online ad slowdown because car companies have been hard hit in this economy. The company expects 10% growth in advertising revenue this year, compared with past growth of 20% to 30%, Darrow said.
Websites that offer special advertising opportunities aren't expected to keep up with those featuring search ads. That means Google Inc., which dominates the search advertising landscape, is in better shape than just about any other ad-dependent company out there. Its second-quarter sales grew 38%.
"During periods of slow economic growth, the last thing an advertiser wants to cut is spending on search-based advertising," Hal Varian, Google's chief economist, told analysts.
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alana.semuels@latimes.com
