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Silicon Valley In For 'Reality Check'

  • GigaOm, Friday, July 18, 2008 11:15 AM
"Silicon Valley is in for a long overdue reality check," says GigaOm's Om Malik -- one that could be on the horizon, given the spate of weak(ish) second quarter earnings from major Internet advertising firms. The signs from display ad firms are particularly bad: ValueClick on Thursday lowered its Q2 forecast from $170 million in revenues to between $162-$164 million. It then cut full-year 2008 sales guidance by 10%, citing weakness in display and lead-generation. The news from Time Warner's AOL should be similarly bad, Malik says, as Pali Capital in a blog post forecast "AOL's display advertising revenues down about 8% in Q2 (Q1 '08 was down about 10% organically), with the back-half down mid-single digits."

Yesterday, tech bellwethers Google and Microsoft also disappointed investors, the latter claiming that the online ad market would remain tough for some time. Google, meanwhile, announced more spectacular growth (39%), but fell short of Wall Street's profit expectations. Even so, company CEO Eric Schmidt said Google would weather the economic downturn, as advertisers turn toward quality.

Blogger Larry Dignan has heard enough: "Color me skeptical. Anyone that lived through the dot-com bust has heard these lines before and no company is immune if there's a recession." Malik agrees, adding that consumers will continue to struggle with the housing crisis, rising fuel costs and inflation, which he says will lead to lower consumer spending, slower sales, and ultimately, less money for advertising.

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