Online Ad Prices Set to Tumble?

If your only revenue stream is advertising, you may want to look into diversifying and quickly. According to a number of key metrics, publishers, and analysts, the online ad market is starting to tank, and it is likely going to get worse before it gets better.

Here are some of the things have come out over the past month that have led to growing unease in the online advertising sector:

• Pay-per-click ads on search engines tanked with the US stock market. Paul Edmonson, CEO of YieldBuild.com, told Wired that there was a 9% drop in ad prices across major search engines in a single day when the stock market dropped like a rock a couple of weeks ago. Prices have mostly recovered since then, but still aren’t back up as high as they were. “It’s very unusual for a large drop to occur,” said Edmondson.
• According to the latest Ad Price Index from PubMatic, display ad prices dropped or stayed flat across all categories. Prices are down nearly 50% since Q4 2007, and have dropped every quarter this year.
• According to the Rubicon Project, CPMs fell 11% on average across their 1,300 publisher clients between Q2 and Q3 this year.
• JP Morgan analyst Imran Khan has lowered ad growth estimates for the second time in the past two months. The analyst predicts display ad growth at 6% in 2009, down from previous estimates of 16%, and search ad growth will be 17.3% next year, down from an earlier prediction 25.5%.
• Blog mogul Nick Denton, the man behind the wildly successful Gawker Media, sees an even gloomier outlook. “Anyone who isn’t prepared for ads to go down 40 percent is crazy,” he said last week. As Silicon Alley Insider’s Peter Kafka says, though, Denton is always seeing doom just around the corner.
• Google felt the need last week to reassure publishers via email that they were working to make sure ad rates stayed up. Many saw that as Google trying to keep publishers from jumping ship on their AdSense network.

According to PubMatic, ad prices have fallen each of the past four quarters.

As the global economy continues to show signs of weakening, the advertising industry is clearly taking a hit and conventional wisdom needs to be thrown out the window. If advertising is your only revenue stream, you need to find new ways to bring in money as soon as you can.

As a publisher, how has your ad revenue looked over the past quarter? How about compared with this time last year? We’d love to hear about your experiences in the comments below.