Daily Wrap Up - internet Financial News

Positive Ecommerce Growth Forecast For Q4

U.S. online retail spending reached $29.6 billion in the third quarter of 2009 (Q309), down 2 percent compared to a year ago, according to a new report from comScore.

Q3 2009 marks the first time on record that consecutive quarters have seen negative ecommerce spending growth compared with the same quarter the year prior.

"The third quarter showed negative marginal growth for the second consecutive quarter - the first time on record we've witnessed sustained dips in U.S. e-commerce spending, small though the declines may be," said comScore chairman Gian Fulgoni.

"The good news is that these declines may finally be in our rear view mirror, as we anticipate marginally positive growth for the fourth quarter. With retailers gearing up for the online holiday shopping bonanza, and a fourth quarter that will include easier comparisons against year ago, we are hopeful that this Christmas season will be merrier than the last."

Over the past few years, free shipping has become a particularly important incentive for boosting online purchase behavior, and its importance has increased considerably during the recent economic downturn. The past several quarters have seen the percentage of ecommerce sales transactions including free shipping increase from 31 percent in Q1 2008 to 42 percent in Q3 2009.

"Free shipping has become an increasingly essential promotion in the e-commerce marketer's toolkit," added Mr. Fulgoni.

"With more than 40 percent of all e-commerce transactions now including free shipping, it's clear that consumers respond favorably to this incentive and in many cases have come to expect it from retailers. The retailers who do not offer free shipping deals this holiday season may find themselves at a significant disadvantage versus those who do."

Local Online Advertising To Hit $14.9 Billion

Smaller local advertisers continue to increase their spending on online media, a trend that should continue into 2010, according to a new report from local-media research firm Borrell Associates.

Borrell's report "2010 Outlook: Local Interactive Advertising," points to a number of companies driving the growth. At the top of the list is Yodle, which is on a path to triple its revenues, to about $75 million this year. Others at the top include Yellbook, which is on track to nearly double its revenues to nearly $400 million, and Local.com, growing 34 percent, to about $50 million.

"It's definitely a year when we see growth only for those operations that have fine-tuned their products and sales strategies to the exact needs of the local marketplace," said Peter Conti Jr., executive vice president of Borrell.

Overall, the report forecasts that local online advertising will grow about 11 percent this year, to $14.4 billion, and will see slower growth in 2010. Borrell says the five-year compound annual growth rate (CAGR) for local online advertising in the U.S. will be 2.9 percent, compared with 46.5 percent growth over the last five years.

"We're not expecting growth to get out of the single digits next year," said Kip Cassino, vice president of research for Borrell.

"Local online advertising will hit about $14.9 billion next year, which is 5% higher than what we're expecting for 2009. We were a bit surprised at the double-digit growth this year, but we are fully expecting much slower growth in the years ahead - certainly a flattening for local online by 2013. It can't grow forever."

Online Ad Spend To Reach 15% In 2010

Online advertising is on track to account for 15 percent of global advertising spending in 2010, up from 13 percent in 2009, according to a new report from GroupM.

In the U.S., digital advertising is expected to account for 17 percent of total spending in 2010 compared to 15.4 percent in 2009 and 13.9 percent in 2008, according to the report. The 2010 figure represents an estimated $24.4 billion in digital advertising, a 7 percent increase over the previous year.

Most of the U.S. growth is driven by search and video, which makes up for declines in Internet display advertising.

"For several years the focus has been on the rapid rise of Google and the implications of its auction based pricing to advertisers and agencies," said Rob Norman, CEO of GroupM Interaction.

"Today, search remains a key driver of digital marketing as advertisers compete to capture a disproportionate share of the intention that search behavior represents."

In terms of spending, global display ad spending is predicted to grow 5 percent to an estimated $20 billion in 2010 while search is on track to show a 12 percent increase representing $25 billion in spending.

Mobile advertising's 2010 global share of ad spending is forecast to reach 6 percent of the total for a 19 percent increase to $3.3 billion from $2.8 billion in 2009. In 2008, mobile ad spending was an estimated $2.4 billion.

As the shift to digital continues, major newspapers and magazines will continue to see declines in audience and, as a result, advertising losses.

Video Game Sales Dip In August

U.S. sales of video game hardware and software fell 16 percent in August to $908.7 million, the sixth consecutive monthly decline, according to the NPD Group.

Hardware sales dropped 25 percent from a year ago, while software sales were down 15 percent. One positive was sales of video game accessories increased 2 percent.

"The back four months of the year will have to be up 14% in aggregate for 2009 to come in flat in comparison to 2008 sales," said Anita Frazier, analyst, NPD.

Nintendo's Wii held onto to its top position as most popular console selling 277,400 units, although sales fell 38 percent.

Microsoft's Xbox 360 ranked second selling 215,400 units with sales up 10 percent due in part to a price cut. Sony's PS3 sales also rose 72 percent from July to 210,00 units due to a price cut as well.

"The price cuts implemented on the PS3 and 360 hardware already made an impact on unit sales, despite having been executed fairly late in the month," Frazier said. "It will be interesting to see the full impact of the new price points on September sales."

The top selling video game of the month was Electronic Arts "Madden NFL 10" for Xbox 360. "Madden NFL 10" sold 928,000 units for the Xbox 360, 665,000 units for the PS3 and 160,000 for the Playstation 2.

Mobile Ad Spend Set To Boom

Growing consumer adoption of mobile Internet services and increased brand engagement with mobile services will lead to a sharp increase in spending on mobile Internet advertising, according to a new report from Juniper Research.

According to the report, ad spend on the mobile Internet will reach $500 million globally in 2009, increasing to nearly $2 billion annually by 2014.

In many markets where fixed Internet access is limited, mobile has already become the main way of accessing the Internet. In India, mobile accounted for nearly 90 percent of all that country's Internet users in 2008. Operator transition from a walled garden environment to a more open model has led to mobile Internet usage surging worldwide. This has also led to an ever-increasing proportion of ad-funded and sponsored searches on mobile handsets.

In addition, mobile's ability to offer instant measurement and accurate response rates is making it an increasingly attractive option for brands looking to demonstrate their levels of campaign engagement with consumers.

"Popular mobile Internet sites are now attracting levels of usage that provide a strong case for advertising and sponsorship options," said Dr. Windsor Holden, principal analyst with Juniper Research and author of the report.

Furthermore, the fact that mobiles are far more personal than home computers - used only by a specific individual - means that brands can build up detailed profiles of user responses and plan follow up campaigns accordingly."

Additional finding from the report include:

Mobile Internet will account for the largest proportion of total mobile ad spend for the first time in 2009, overtaking SMS advertising

The total value of ad spend on mobile is expected to rise from just over $1.4bn in 2009 to $6bn in 2014

Despite the increasing popularity of mobile advertising, most campaigns are ad hoc and there are very few converged campaigns

Online Video Ad Spending To Hit $4 Billion

Online video viewing is increasing steadily and advertising spending is following suit, according to a new report from eMarketer.

Online video ad spending is on track to nearly quadruple from more than $1billion this year to more than $4 billion in 2013. Still, most people will not spend a long period of time watching video on their computer screens, but they will on their flat-screen TVs.

Online video ad spending is small in terms of absolute dollars compared with TV. For every $1 marketers spend on Internet ads in 2009, they will spend nearly $65 on TV commercials. But, online video is ahead in terms of dollars spent per hour of content viewed.

eMarketer forecasts that TV advertisers in the U.S. will spend only $0.13 per hour of viewing, while their online video counterparts will spend 38 percent more, at $0.17 per hour.

"By 2010, the difference between Internet video's and TV's spend per hour will start to even off-which indicates a potential tipping point for online video advertising," said David Hallerman, senior analyst and author of the report "Digital Video Advertising: Where's the Money?"

In order for Internet video to grow more quickly, it needs to reach an inflection point where online video and TV video have significantly converged.

"In the lean-forward computing mode, people are mousing and ready to click at the slightest provocation," said Mr. Hallerman.

"In the lean-back TV mode, while people may certainly click with the remote, they tend to spend extended time with the content and absorb messages with a more receptive frame of mind."

Matching ad spending to viewer eyeballs in a ratio on par with TV will support online video ad spending growth, making the generally higher CPM pricing for online video more acceptable to many marketers.

Yahoo Hammered Due To Deal With Microsoft

On February 2nd, 2008, Microsoft tried to acquire Yahoo for $44.8 billion. Now, the corporations have settled on a weak sort of search and advertising partnership, instead, and the difference between those two deals has created quite an uproar in the Internet financial space.

Carol Bartz, who was brought in as Yahoo's CEO after Jerry Yang failed to accept Microsoft's acquisition offers, seemed determined to get Yahoo back on its feet independent of all other companies. Or failing that, she was at least supposed to hold out for "boatloads of money."

But she didn't. The new Microsoft-Yahoo deal doesn't involve any sort of upfront payment; a bit of revenue-sharing is all that's supposed to take place.

So Yahoo's stock has taken quite a hit since the deal went through. On July 28th - just before the official announcement was made - it closed $17.22. This morning, it's trading at $14.63 - a full 15.0 percent lower.

Meanwhile, investors are behind Microsoft, but not in a particularly big way - it's just moved from $23.47 to $23.88 (an increase of 1.7 percent) during the same time period.

We might be witnessing a deal that'll go down as one of the online sector's biggest ever goofs, then. (Assuming it goes through at all. Microsoft and Yahoo have set their sights on early 2010, with all sorts of integration issues and antitrust investigations possibly standing before them.) Yahoo's shareholders might try to take a bit of comfort in that fact, at least.

Location-Based Services To Reach $2.2 Billion

Global consumer location-based services (LBS) subscribers and revenue are on track to double in 2009, according to Gartner.

Despite an anticipated 4 percent decrease in mobile device sales, LBS subscribers are forecast to grow from 41 million in 2008 to 95.7 million in 2009 while revenue is predicted to increase from $998.3 million in 2008 to $2.2 billion in 2009.

Gartner defines LBS as services that use information about the location of mobile devices, derived from cellular networks, Wi-Fi access points or via satellite links to receivers in (or connected to) the handsets themselves.

"The LBS industry has matured rapidly in recent months through a mixture of consolidation, improved price/performance of the enabling technologies and compelling location applications," said Annette Zimmermann, senior research analyst at Gartner.

"Factors driving the increase in the next year or so include higher availability of GPS-enabled phones, reduced prices and appearance of application stores."

Gartner predicts that ad supported or "free" (excluding data charges by mobile carriers) will gain more traction as user adopt it as a way to manage costs. Mobile carriers that stick with the business model of charging users $5 to $10 per month plus date plans will experience high churn rates as users will look for free alternatives. In North America and Western Europe, the share of users opting for free services is about 10-15 percent today and is expected to grow to 40-50 percent in 2013.

"The competitive landscape will change and most mobile carriers need to alter their approach toward offering LBS and dealing with developers," said Ms Zimmermann.

"Subscriber growth will hinge on "free" - disregarding data charges - services. Mobile operators' initiatives to open up the application programming interface (API) to third-party developers will help them compete against other players in the market and will also be beneficial to the different parties involved, down to the end user."

Google Invests More Money In 23andme

23andme is a biotech company that was cofounded by Anne Wojcicki. Anne Wojcicki just happens to be married to Google cofounder Sergey Brin. And now, according to an SEC filing, 23andme has become $2.6 million richer thanks to Google.

Google made an initial investment of $3.9 million in 23andme some time ago. Considering that Google's in the business of search and advertising, and that 23andme tests people's spit for diseases (or more accurately, genetic predispositions to disease), this crossover raised a few eyebrows.

As Scott Morrison reports, the situation looked even iffier once people learned that "[t]he funds from Google's first investment in the biotech group were used in part to repay a loan of approximately $2.6 million that Brin had earlier provided to 23andMe."

But anyway, the SEC document makes Wojcicki's and Brin's relationship clear, and points out that Brin put in a lot more money - $10 million - this time around. The filing also states, "Google continues to hold a minority interest in 23andMe as a result of the Series B investment," so it seems that no under-the-table-takeover has occurred.

Google's investors appear to be perfectly okay with the move, as well, since the search giant's stock rose by 1.46 percent today.

Nothing was said about where the two companies might go from here.

Top Disk Storage Vendors See Revenue Declines

Sales of disk storage systems saw an 18.2 percent decline in the first quarter of 2009, compared to the prior years first quarter, according to market researcher IDC.

"The disk storage system vendors are really seeing the impact of the global economic downturn in the first quarter revenues," said Steve Scully, research manager, Enterprise Storage at IDC.

"However, while total revenues declined year over year, the overall storage capacity shipped continued to grow. These contrasting results are due to a combination of currency implications, lower overall sales, shifts in product mix, and aggressive pricing actions."

EMC held on to its lead in the disk storage systems market with 20.7 percent revenue share in the first quarter, followed by HP and IBM in a statistical tie for the second position with 11.5 percent and 11.3 percent revenue share respectively. Dell and Hitachi finished the quarter in a statistical tie for fourth place with 9.8 percent and 9.4 percent revenue share respectively.

All vendors in the top five saw declines in first quarter revenue growth. HP was hit hardest dipping 19.6 percent for $482 million compared to the first quarter of 2008. EMC saw a decline of 16 percent for $871 million followed by IBM with a 15 percent drop for $476 million in revenue.

"Although the economic crisis was fully realized by the enterprise storage systems market in the first quarter of 2009, the quarter wasn't without its bright spots," said Liz Conner, research analyst, Storage Systems. "Entry-level price bands ($0K - $14.99K) showed 9.9% year-over-year growth and the midrange price band ($15K - $49.99K) was flat year over year, supporting IDC's belief that storage products are still in demand, with customer spending trending towards more modular, price point options."

"In addition, the high-end price band ($300K-499.99K) saw a 14.5% year-over-year growth as vendors discounted their very high-end products, shifting the ASV's into lower price bands in order to meet the demand for high-end storage while accounting for reduced IT budgets."