When I opened my inbox this morning, one of the first emails I saw was the one from Imran Khan, Internet and media analyst at JP Morgan.

Not surprisingly, it wasn't about the sky clearing. It was more like the sky was falling. Khan's headline: Further Economic Deterioration Drives Our Second Estimate Reduction in Two Months. Khan said in his piece: "Our channel checks are showing that sell-through is declining... so far, CPMs for premium inventory are flat to slightly down. Looking forward, we think CPMs for premium inventory are flat to slightly down."

Meanwhile, Pubmatic's quarterly AdPrice Index for the third quarter, showed that the average ad price of 27 cents across its 5,000 publishing customer sites was a 21% drop from the second quarter, and a 27% decline from the average ad price in the first quarter. Pubmatic, which is only measuring display advertising, is an ad network management company. In the report, the PubMatic team said: "Ad pricing for display advertising is trending downwards - not terribly dramatically overall in terms of percentages, but consistently, and across nearly all categories, by size and vertical." 

Meanwhile, Rubicon Project put out its report on Nov. 3, saying pretty much the same thing. "Average CPMs served across thousands of sites and 270 ad networks slipped 11 percent from Q2, but performance varied by network type and channel. Several channels experienced greater than 25 percent lift in CPMs from Q2, while others dropped by almost 20 percent. This fluctuation among verticals appears little different from past quarters’ analysis," according to the latest report. Rubicon is another ad network management service.

At the same time, I read a piece by Eric Ries, co-founder of IMVU, about advice from Kleiner Perkin's John Doerr. In Eric's piece was this advice: "Get 18 months or more of cash (runway) in the business against a conservative forecast."

My takeaway from the latest online ad news and John Doerr's advice is: Don't rely too much on advertising to help bring in revenue to extend the runway. Or, if you do, you better drop the expectations of what kind of CPMs (cost per thousand views), you'll be getting.

That's exactly how many ad-supported companies should be feeling right now.

Here's more from Imran's report:

Overall ad budgets continue to weaken. Since we reduced our estimates on September 4th, we have seen a further slowdown in the economy, particularly in the last 2 weeks of the 3rd quarter. Weakness continued into October and spread from the US and UK throughout continental Europe and Asia. Additionally, dollar strength was greater than expected which will further depress growth rates. We are now basing estimates on a $1.25 exchange rate vs. our prior base of $1.40. Our updated model calls for total online global advertising growth of 25% in F’08 and 13% in F’09 vs. our prior estimates of 28% and 19% Y/Y growth respectively.

Deterioration of display advertising is more pronounced than expected. Our channel checks are showing that sell-through is declining. Additionally, so far CPMs for premium inventory are flat to slightly down. Looking forward, we think CPMs will remain depressed and sell-through rates will worsen. As a result, we are lowering our F’08 and F’09 domestic display estimates to $7.95B (11% Y/Y growth) and $8.45B (6% growth) from $8.15B (14% Y/Y growth) and $9.43B (16% growth). We are now modeling F’08 global display ad growth of 14% Y/Y vs. our prior estimate of 16% growth.

Search performance held up in 3Q but we expect ad budget cuts to bleed through. We continue to see performance-based advertising holding up better than banner advertising. Long tail advertisers continue to allocate additional dollars to search. However, keyword price inflation is moderating. Additionally, we think marketing spend pullback in some segments including travel, telecom, autos, and retail is worsening. As such, we are lowering our domestic F'08 and F'09 search growth estimates to 23.4% Y/Y and 17.3%, respectively, from 27.4% and 25.5% Y/Y growth. We are modeling F'08 global search ad growth of 34% vs. our prior estimate of 36% Y/Y growth.

(source image: 18.photobucket)