Internet advertising may be showing itself more vulnerable to a consumer slowdown than many in the industry had hoped, according to new search-ad data released this week. The report from research firm comScore Inc. showing a decl

ine in the number of consumer clicks on Google Inc. search ads in January amplified existing concerns about the effect of a broader economic slowdown on the Internet. Many online-ad experts have played down such worries, predicting any economic weakening will be offset by a continued shift in ad spending from traditional media to the Internet. Google Chief Executive Eric Schmidt said the company hadn't seen any impact from macroeconomic softening when the Internet company reported earnings Jan. 31. But some investors and analysts have grown anxious in recent months that any pullbacks in consumer spending would hurt online ads. ComScore released data to clients Monday showing a 7% decline in the number of times U.S. consumers clicked on ads appearing alongside Google's search results in January compared with December; clicks were 0.3% lower compared with January 2007. That follows a 7% decline from November to December. Google charges an advertiser only when a user clicks on one of the small text ads for, say, digital cameras, that appear when a user searches for "digital camera." ComScore also reported a 1% decrease in U.S. search-ad clicks for Yahoo Inc. for January from December, with clicks increasing 4% for Microsoft Corp. over the same period. Google shares were down 4.6%, or $22.25 on the news, falling to $464.19 in 4 p.m. Nasdaq trading yesterday, having dipped more than 8% lower earlier in the day. Google is trading 38% lower than its 52-week intraday high. (Please see Options Report.) Some analysts say comScore's latest numbers may exaggerate any slowdown in clicks. J.P. Morgan Internet analyst Imran Khan in a research note pointed to divergences in the comScore click data and Google's reported results in the past. RBC Capital Markets Internet analyst Jordan Rohan called investor reaction to the data "overblown," saying that it fails to take into account any increases from revenue per search because of factors such as higher pricing. Mr. Rohan said RBC checks with search advertisers indicated a pickup in spending in February after weakness in January. "It may not be a great first quarter, but it's not going to be as bad as the numbers from comScore suggest," Mr. Rohan said in an interview. The concerns about the online-ad outlook come amid indications that Internet advertising hit record levels in 2007. The Interactive Advertising Bureau trade group and PricewaterhouseCoopers Monday estimated that U.S. online-ad revenue hit $21.1 billion last year, a 25% increase from 2006. Google declined to comment. When it reported fourth-quarter revenue and profit that fell short of Wall Street expectations last month, Google said clicks on ads increased 30% in the fourth quarter from a year earlier, compared with a roughly 50% average increase during the previous four quarters. At the time, executives cited Google changes that lowered the click growth rate, such as a modification to site design that makes it harder for users to click on ads accidentally. But some analysts say new data suggest the trends in ad clicks indicate Google is feeling an impact from a consumer slowdown in the first quarter, so far at least. The risk is that if consumers are spending less overall, they are less prone to click on search ads. Google has said it could benefit from comparison shopping by price-sensitive consumers who conduct more searches and click on more ads to find the best deal. But, over time, such behavior could lead advertisers to rein in online-ad spending if they're notching fewer sales for each ad click. John Aiken, managing director of Majestic Research in New York, says his analysis suggests that's exactly what's happening, with small- to medium-size advertisers pulling back on search advertising as the return on their ad-spend investment drops. When that occurs, Google has fewer ads to display, generally reducing the likelihood a consumer sees one to click on. "It's been a trend that's been getting worse over the last four to five months," Mr. Aiken says. Tepid electronic-commerce data have added to concerns, given a link between online sales and advertising. U.S. e-commerce spending in January fell 17% from December, and was up a modest 11% compared to January 2007, according to comScore. It had fallen 14% in January 2007 from December 2006, and risen 19% in January 2007 compared with a year earlier. Some others say they aren't seeing a consumer pullback in online data. Consumer visits to retail sites from have increased 11% so far this year compared with the same period a year earlier, according to research firm Hitwise, a unit of Experian. "I'm not seeing necessarily any signs of recession in terms of consumers' curtailing their visits to retail from search," said Bill Tancer, general manager of global research at Hitwise. The anxiety about online advertising comes as Microsoft is pursuing Yahoo with an unsolicited cash-and-stock offer valued at $41.7 billion based on Microsoft's share price in Nasdaq trading yesterday. It's unclear whether the concerns could affect the outcome of that takeover standoff, though a bleaker Internet-ad outlook could potentially increase pressure from shareholders on Yahoo to accept the offer, and decrease Microsoft's willingness to raise its bid. Yahoo has rejected the bid on the grounds that it undervalues the company. Source: Kevin J. DELANEY, W.S.J.