LONDON -- The woes of Internet titan Yahoo have revealed a sickly U.S. online advertising industry with frail prospects for this year, but the picture is somewhat different in Europe where solid growth is still expected.
Executives and analysts predict growth of at least 20 percent in European online advertising in 2001 and say Internet service providers (ISPs) and websites in Europe should feel the pain of any downturn less severely than their U.S. counterparts.
"In the last six months, we've seen strong growth in online advertising spending in Europe. I think the key is that European advertisers have been able to learn from the mistakes and successes in the U.S.," said Jason Dooris, the head of Media Com, the new media arm of advertising group Grey Communications.
Nevertheless, European Internet companies, which rely heavily on advertising revenues, caught a touch of the jitters on Thursday following Yahoo's profit warning.
Europe's largest ISP, T-Online, fell nearly six percent, while Spain's Terra Lycos was 10 percent lower, and France's Wanadoo was 7 percent softer.
In New York, Yahoo was trading 20 percent down, after saying first-quarter results would fall short of forecasts as dot-com advertisers dropped off the site faster than expected.
But analysts note that European online advertising is partly cushioned by the fact that it is less dependent on advertising by dot coms, being one step behind the United States.
"There is significantly greater online advertising in the United States than Europe, which is a less mature market," said one analyst. "I think Yahoo was capturing a large proportion of dot-com advertising, and so the dot-com slowdown was always likely to have more of an effect on Yahoo than anyone else."
Terra Lycos, owned by Spanish telecoms operator Telefonica (and the owner of Wired News), is one European player seen most exposed to Yahoo's warning, largely because of its hefty U.S. revenues.
Created by the merger of U.S.-based search engine Lycos and Telefonica's Internet arm, Terra Lycos reaped around 55 percent of its sales from the United States last year, most of which was through online advertising revenues.
"While we understand that Terra may have sufficient long-term ad contracts in place for Q1, we are concerned that the group may hit a wall if online ads do not show recovery signs from as early as Q2," Merrill Lynch said in a report.
Another analyst noted, however, that Terra Lycos has a large slice of secure advertising and e-commerce revenues under a deal with German media group Bertlesmann -- its partner in Internet group Lycos Europe.
Merrill Lynch predicts that online advertising will grow by about 25 percent in Europe this year compared to an overall flat performance in the United States.
But forecasts vary wildly. Research firm Forrester, for example, predicts that European online advertising will grow by 70 percent this year, compared with over 100 percent last year.
"We are still sticking by that forecast. Growth is clearly slower than last year, but speaking to publishers here, they're not nearly as gloomy as their counterparts in the United States," Forrester said.
Online advertising in Europe amounted last year to 650-950 million euros ($605-$885 million), compared with $2 billion in the United States in the third quarter alone.
While the business may not be as developed as the United States, executives said advertisers in Europe were demanding more sophisticated online campaigns that are more effective than the traditional banner ads.
"Campaigns need to be more imaginative and interactive, with interesting features such as sound and pictures. While this may be more costly, it's a better return on investment," said Nigel Sheldon, managing partner at M digital, the interactive arm of WPP's media-buying firm Mindshare.
While big websites are believed to be better placed to weather any storm, some advertising executives complained that the large sites are too inflexible on price and style.
"They are not as easy to strike new arrangements with. The big sites need to maintain yield, but they are difficult over price, and advertisers are simply opting instead for strong, niche sites to reach consumers," said one advertising executive.
In addition to such concerns, analysts believe the big European players still have a degree of "hope value" in their stocks, although to a lesser degree than their U.S. counterparts.
"The outlook for European online advertising may not be so gloomy, but the feeling is that Internet companies must still look to subscriptions and other revenue sources to secure their future," said one of the more skeptical analysts.
