Shoring Up The Online Advertising Biz

The online advertising business is in for a rough patch, especially for display advertising. The signs are everywhere. Yahoo, the biggest publisher of display ads on the Web, reported a 2 percent decline in display ad revenues in the fourth quarter, and the New York Times is seeing even steeper declines.

There is just way too much advertising inventory out there, and Websites are actually trying to show less ads per page to reduce ad clutter and keep advertising rates from cratering. The chart above from comScore’s 2008 Digital Year in Review shows that the number of display ads served in the U.S. is actually slightly down from a year ago. Even so, comScore estimates that 4.5 trillion ads were served to U.S. consumers last year. That comes to 2,000 ads per month per person.

And how many of those ads even register? The more ads that get thrown at us, the more we learn to ignore them.

As a consequence of the declining display ad revenues and the over-saturation of ads, there is simply no need for the 300-plus ad networks out there. And what we are seeing now is the stronger ad networks are picking up funding to shore up their positions and the weaker ones are getting bought. Just last night, for instance, Glam Media bought AdaptiveAds. This morning SocialMedia raised $6 million rather than the initial $20 million it was looking for and mobile ad network AdMob raised $12.5 million.

AdMob described its funding round as a “series C extension” of the $15.7 million it raised from Sequoia just last October. CEO Omar Hamoui confirmed to me that today’s funding was at the same valuation as the last one. Any funding in this environment is an accomplishment, but it does support my shoring up thesis. And AdMob is 100% focused on ads that appear on mobile phones, especially the new crop of Web-capable devices. This is still a high-growth area (and is not represented in the chart above), but it makes you wonder if those mobile ad rates are also feeling the pressure. Update: They are.