'We're Not Seeing the Problems Others Are,' Chief Says of Online Ad Market

By Sara Kehaulani GooWashington Post Staff Writer
Friday, July 21, 2006; Page D05

The lackluster performance among the technology powerhouses this week might have been easier to understand had it not been for Internet giant Google Inc. and another strong quarter in search advertising revenue.

Online advertising had been showing signs of easing its furious growth rate over the past few years when Google announced yesterday that its revenue grew by 77 percent from the second quarter of 2005, its profit more than doubled and it continued to grab market share from its competitors.

 

Earlier this week, Yahoo Inc., which runs the No. 2 search engine, said it would delay its plans to launch a new advertising system aimed at improving its position against Google. EBay Inc. disappointed investors with signs of slower revenue growth, and Microsoft Corp., which said yesterday that profit dropped by 24 percent, said it plans to focus more aggressively on its Internet products to take on Google.

"We're not seeing the problems others are," said Google chief executive Eric E. Schmidt, adding that usage of the search engine was high and that partnerships to extend Google's reach were paying off.

Google reported profit of $721.1 million, compared with $342.8 million in the comparable period last year, and revenue of $2.46 billion.

Google's market share grew to 44.7 percent last month, up from 37 percent last year, while Yahoo's dropped slightly, to about 28.5 percent, according to ComScore Networks Inc. Third-place Microsoft Corp., which is overhauling its search and advertising capabilities, also took a slight dip, to 12.8 percent.

Several analysts said Yahoo's delay until early next year of the new advertising program will provide Google with a bigger opportunity to capitalize on its leading position for the rest of the year. Yahoo shares tumbled 22 percent on the news Wednesday before rebounding slightly yesterday, but a few analysts downgraded the stock on the news.

"This delay removes a potential positive catalyst to get people excited about Yahoo again," said Scott Kessler, technology analyst at Standard & Poor's Corp. He noted that the big search engines play a large role for e-commerce, particularly during the holiday season.

Google could gain more ground this season with a recently launched product called Google Checkout. The service competes directly with PayPal, an online payment service owned by eBay, which announced a price hike for retailers earlier this week.

So far, Google has dozens of retail partners, but the company expects even more growth. "Our goal is, of course, everyone," Schmidt said.

Online advertising has been growing at about 30 percent a year, according to the trade group Interactive Advertising Bureau, as more advertisers turn their dollars away from television and other traditional media to the growing audience online.

Peter Petrusky, director of advisory services at PricewaterhouseCoopers LLP, which conducts quarterly studies for the advertising bureau, said he expects to see total online advertising dollars grow to $15 billion to $16 billion this year, compared with $12.5 billion last year, and more growth in online video advertising.

"All signs point to continued growth and large numbers," Petrusky said. But "we're not going to continue to see 30 percent growth year over year. It can't continue to sustain that basis."