Display ad spending down sharply

Glut of inventory pressures premium display ads

While online advertising continues to reach new heights, a glut of inventory is keeping them at lower altitudes.

Spending for display advertising in October has dropped dramatically from September, reported Citigroup Internet and media analyst Mark Mahaney, who just returned from the AdRevenue 08 conference.

Here are some of his takeaways, after speaking with Federated Media, Meebo, Six Apart, ContextWeb, AdECN, PubMatic, Razorfish, Havas Digital and Media Math.

1) Publishers, advertisers and agencies indicated to us that with significant increase in inventory, especially from social media sites, display CPMs (cost per thousand impressions) have been and will continue to be under pressure

2) October spend appears to have dropped sharply vs. September

3) Ad budgets continue to shift from offline to online, but away from premium display and towards performance based advertising

4) 2009 marketing budgets are still in flux as marketers are taking a wait & see approach

5) We believe the conference takeaways are incrementally more negative for premium display businesses.

Overall, online advertising continues to rise. Mahaney estimates that online advertising grew 9% year-over-year in the third quarter, and will increase 6% year-over-year in the fourth quarter.

Still, if you're relying on display advertising to fund your existence, better lower expectations on what marketers are willing to pay.