Gawker's Denton Sweats Over Decline in Web Ad Revenues

Last Updated Nov 12, 2008 7:44 PM EST

ngad-mug-2005-thumb.jpgGawker Media's Nick Denton has made a horrible prediction regarding internet adspend for the next year: He thinks it will not be immune to the recession and companies like his should start cutting expenses now. You can tell Nick is truly nervous about the economy because of how sweaty he appears to be every time a photo is taken of him. (See gallery.)

Specifically, Denton sees revenues sinking through 2010, according to a set of charts at the bottom of this rant he posted. He cites this key fact as the reason web adspend will not be immune to the crisis:nickdenton.jpg

In 2001, internet advertising swung to a 13% decline from 78% growth the previous year; this time the sector starts from a growth rate of 27%; I would hate to see what a swing as violent as the dotcom burst would look like.
img_1514_polaroid_cropped.jpgAs BNET readers know, there's an alternative theory about this. Simply put, that theory states that as advertising budgets as a whole get cut, proportionately more money will end up in the cheapest and most efficient advertising media. And that means the web. Observers expect web spend to be roughly flat this year.

So who is right? ValueClick recently showed a 2.5 percent decline in Q3 revenues, to $153 million, suggesting that Denton has got this correct. But ValueClick is a dwarf compared to Google, where most web ad money is channeled through. Google showed revenue growth of 30 percent in the last quarter to $5.5 billion; and 26 percent net income growth to $1 billion. Most of that revenue is ads. Google controls the vast majority of search -- and therefore web ad -- activity. Thus it is a good proxy for the market as a whole.

dsc_1028.jpgSo, for Denton to be correct about the web ad economy as a whole, Google has to see a 13 percent decline in revenues. Spookily, his pessimism is shared by analysts, and GOOG fell to below $300 a share for the first time in ages. (BTW, why is Google's investor relations site so lousy?)

I may be eating my words in a year's time, but I'm going to predict that adspend as a whole will remain flat in 2009. I just can't see Google's revenues tanking. Certainly, niche sites like Denton's network may see a decline in advertising (not everyone wants to be next to his staff's Sasha Grey obsession). But the web ad economy as a whole will be the beneficiary of falling budgets.

Readers: Feel free to email me or comment the moment something emerges to suggest I'm wrong.