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Global Internet Ad Spending Stabilizing: IDC

Global Internet advertising slipped for the third straight period in the third quarter, but the rate of decline is leveling off, indicating that the sector could be poised to return to growth early next year, according to research firm IDC.

The firm reported online ad spending of $14.6 billion in the period, down 1 percent from the $14.7 billion it reported in the third quarter of 2008.

U.S. spending contracted more sharply, down 4 percent from the year-earlier period, dropping from $6.6 billion in 2008 to $6.4 billion in the most recent quarter.

For a still-young ad sector that has enjoyed double-digit sequential increases through much of the decade, the negative growth rate has been an abrupt change of course. Nevertheless, IDC takes the slowing rate of decline as an encouraging sign.

"While spending still contracted in most regions and segments, the latest numbers indicate that online advertising may have begun to recover," said IDC analyst Karsten Weide.

In the second quarter, global Internet ad spending posted a sequential decline of 5.6 percent, compared to the 1 percent decline in the third quarter.

IDC is projecting spending to dip again slightly in the fourth quarter, but return to positive sequential growth in the first or second quarter of 2010.

IDC's findings are borne out in the balance sheets of some of the biggest players in the Internet sector, with both Google (NASDAQ: GOOG) and Yahoo (NASDAQ: YHOO) recently reporting earnings for the third quarter that showed signs of stabilization in revenues from online ads.

IDC first sounded the alarm that online ad spending could see its first decline since the dotcom bust at the beginning of the decade in February.

Within the sector, IDC expects search advertising to rebound faster than display, which would mirror the onset of the decline, when advertisers abandoned the less-accountable display medium before cutting their search budgets.

IDC also reported modest growth for Microsoft (NASDAQ: MSFT) within the search market since the launch of its rebranded Bing search engine, which it is heavily promoting through a far-reaching marketing campaign.

Microsoft's share of total revenue in the search-ad market increased from 6.1 percent in the second quarter to 6.8 percent in the third quarter, according to IDC.

"Microsoft's estimated search ad revenue grew by 5 percent, or $11 million, year on year, but it should also be noted that the company currently spends about twice as much per quarter on the Bing marketing campaign," Weide said. "It remains to be seen if Bing can hold on to this market share gain after the campaign ends, or if this is merely a flash in the pan."

IDC found that Microsoft's gains in the search-revenue sector were offset by declines at Yahoo, while Google's share of the pie remained consistent.