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Google's Share Of U.S. Online Ad Market Dips

Google's share of the U.S. online advertising market was 23.7%, down from 24.2% in the third quarter, the search engine's first drop in two years, IDC says.
Google's share of the U.S. online advertising market dipped in the fourth quarter of 2007, the search engine's first drop in two years, a market research firm said. But despite the slight retreat, Google held on firmly to its dominant position.

Google outperformed the overall Internet advertising market by a factor of almost 1.5, and its closest competitor Yahoo by a factor of two, IDC said in a report released Tuesday.

Google's share in the quarter was 23.7%, down from 24.2% in the third quarter. The decline was caused by Google's quarter-to-quarter revenue growing by less than the overall market, 11.8% versus 14.1%, respectively.

However, compared to the same quarter in 2006, the company's market share grew by 2.1%. Sales increased 40.2% in the fourth quarter of 2007 from a year ago to $1.726 billion. Google easily beat the overall market growth of 27.5%.

For Yahoo, the numbers were unlikely to give it any ammunition to fight a $44.6 billion takeover bid from Microsoft, which believes a combined company would be in better shape to compete against Google. Because Yahoo underperformed the overall market, its share dropped to 11.4% in the quarter from 12% a year ago. "IDC believes Yahoo will likely eventually agree to an acquisition by Microsoft," the research firm said in the report.

Yahoo's revenue growth, however, has been improving, increasing 21.7% over the fourth quarter of 2006 to $832 million. Revenue growth rates have been improving steadily from a low of 2.1% in the first quarter of 2007.

Microsoft remained in third place at about half the size of Yahoo. Microsoft's U.S. online advertising revenues grew 23.6% from a year ago to $411 million. The company's market share, however, declined to 5.6% from 5.8%.

"IDC believes the proposed $44.6 billion acquisition of Yahoo by Microsoft would create a formidable new challenger to Google," the report said. "However, integration issues would push out positive effects of a merger at least two years."

Given the standing of Yahoo and Microsoft, IDC said it was unlikely Google would be able to convince regulators that a merger between the No. 2 and No. 3 players would stifle competition. "Google perceives Microsoft's move as a potential threat," the report said. "However, we see little reason to believe Google's position has merit.

"A Microsoft-Yahoo would increase competition by creating a more viable competitor while creating no monopoly in any segment of the advertising industry."