As a result, Khan said JPMorgan is lowering its 2008 and 2009 outlooks for both search and online display advertising, but he said the bigger impact would likely be felt by the online display advertising marketplace.

"We expect the biggest area of weakness will be display advertising," he emphasized. "As advertisers become more conservative with their ad spend, we think that the long-tail advertisers will shift toward performance-based advertising forms."

Khan lowered JPMorgan's outlook for the U.S. online display advertising marketplace from his original forecast of $8.6 billion to $8.2 billion. That represents a reduction from his original annual growth rate projection of 20% to just 14% for 2008, a marked slowdown for the online sector.

Khan shaved JPMorgan's 2009 display ad spending forecast to $9.4 billion from his earlier forecast of $10.0 billion. That would be an annual growth rate of 16% in 2009 vs. his earlier projection of 17% growth.

"Search ad spend may be down slightly due to economic weakness, however we see much of this effect offset by the market share shift towards performance-based advertising," Khan noted. "We think that the search advertising market will fare better than the display market given advertisers' preference for performance-based advertising.

Consequently, JPMorgan is reducing its search ad growth estimates to 27% for 2008 from its initial forecast of 32%.

"We see the growth rate recovering in fiscal 2009 as the economy turns and as we expect the market share increases to stick. Thus, we are now modeling U.S. search growth of 26% [for] fiscal 2009," he wrote.

In terms of the global online advertising marketplace, JPMorgan now projects worldwide display growth of 16% for 2008 vs. his earlier forecast of 22%. The global search ad market will rise 36% in 2008 vs. JPMorgan's earlier prediction of 39%.

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