Terry Semel lowered guidance at Yahoo last week, citing the fact that automotive and financial advertisers are spending less.

Henry Blodget is left to wonder if Yahoo is the canary in the coalmine that serves as a warning to all online ad-supported businesses that a slowdown is coming.

Here a couple things to think about:

• Yahoo controls over 40% of web display advertising. It dominates the banner-scape like Google dominates search ads.
• The last 3 years have been very good for Yahoo. The market hasn't cared much, because Google is the leader, and Yahoo's search ad product isn't nearly as profitable as Google's

I come down on the side that Yahoo is suffering earlier than it should be; however, when an ad slowdown comes - and it will - Google will suffer too. Yahoo should have adapted faster to the very predictable decrease in spend by advertisers in interest-rate sensitive markets.

Yahoo should have revamped their search ad system by now - it is easily over 1 year late - because it would have helped diversify their revenue.

By the time Panama launches next year, the overall ad market will be slowing even more, so Yahoo will be sailing into a headwind as it tries to build share. I think uptake will be slower than most people believe.

The simple reason Google will suffer despite the shift of more ad budget to online from major advertisers is that big advertisers will slow down spending faster than Google and Yahoo predict.

Currently, Yahoo's display business is more dependent on big advertisers and specific sectors. However, Google has been growing its salesforce and winning more and more big advertisers, so they won't be immune.

¶ 9/28/2006