If anyone doubts that the online advertising world is currently undergoing a seismic shift, he or she need only look to one recent headline and two newly-released studies. The headline, ‘Top 100’s Ad-Spend Growth Grinds to a Halt,’ appeared in the June 26 issue of Advertising Age, and referred to an analysis of the 100 biggest advertisers the US market. The two studies, from research firm IDC, predict that US internet ad revenue will increase from $25.5 billion in 2007 to $51.1 billion in 2012, and that revenue for internet video advertising will jump from $.05 billion in 2007 to $3.8 billion in 2012.

These figures have set off a flurry of activity at Microsoft, Google and Yahoo !. Microsoft tried to buy first all, and then part of, Yahoo!. Yahoo! rejected the offers and moved ahead with its plan to form an ad-sharing agreement with Google, which will provide Yahoo ! with $250 million to $450 million in near-term cash flow, and the potential to add $800 million to annual revenues.

Google, in turn, recently acquired major online ad network provider Double-Click to maintain its role as the dominant player in the constantly evolving search universe. On July 21, Yahoo! said it would give activist shareholder Carl Icahn, who had pushed a deal with Microsoft, a seat on its board and two seats for his allies. Earlier this month, under pressure from Icahn , Yahoo! signaled it is still interested in striking a deal with Microsoft, which is seeking partners for a deal to buy and possibly divide the company.

Wharton marketing professor Peter S Fader says he understands why Microsoft wants to beef up its presence in the fast-growing realm of online advertising , but doubts that pursuing Yahoo! is an effective strategy. “I don’t see how this is going to get them anywhere close,” Fader says. “I don’t see any great synergies appearing out of this.”

“It’s all about Google,” adds Eric K Clemons, Wharton professor of operations and information management. Owning a piece of Yahoo! would give Microsoft the reputation and market share it needs to defeat Google, he suggests , noting that Microsoft is “terrified” of Google Apps, a free suite of productivity software that competes with Microsoft’s lucrative Office products. It would also raise Microsoft’s visibility as search provider. “Microsoft’s search is as good as Google’s , but nobody knows it or believes it,” says Clemons.

Yahoo! CEO Jerry Yang sought earlier this month to soothe monopoly concerns over the agreement with Google, saying both firms were committed to an open online ad marketplace. The companies say they will voluntarily submit to a federal antitrust review before rolling out their combined technologies . The non-exclusive agreement with Google “will strengthen our competitive position in the convergence of search and display” , Yang stated in a conference call with investors. “We see this as a natural extension of efforts we have already made toward an open marketplace.”

No matter how the drama unfolds, advertising executives still might want to focus on getting more web savvy. The traditional, offline ad business is mired in a funk, as noted by the Advertising Age headline. Meanwhile, as the two IDC studies noted, all forms of online advertising revenue are expected to surge over the next several years. Indeed, part of Yahoo!’s rationalisation for the Google hookup was that it will more efficiently deliver display ads, or ads with an image element, when they perform searches for their favorite topics.

According to TNS Media Intelligence, traditional media ad spending rose a miniscule 0.6% overall in the first quarter of 2008, with anemic performances from television (1.7% increase), magazines (up 0.8%) and outdoor advertising (a 2.5% gain). Newspaper ad buys were down 5.2% and radio saw ad sales fall by 4.5%. Meanwhile, the internet, for which TNS included only display ads, leaped ahead 8%, about $2 billion, for the quarter. John Swallen, a senior vice-president for research firm TNS, chalked up the offline results to a dour US economy and offered little hope of things looking up in the near future: “Early figures from the second quarter indicate little immediate or sustained improvement in the core ad economy,” he said in a statement accompanying the numbers.

So if the US economy is in such bad shape, and print advertisers are hurting, why has the online market until very recently not shared in the pain? “What happens is that the current economic crisis puts pressure on advertisers to save money and find more effective marketing channels,” says Karsten Weide, IDC’s programme director for digital marketplace and new media . “Effectively, the crisis accelerates the shift of advertising budgets from traditional media into new media .” Fader warns, however, that such statistics don’t tell the whole story. “I’m always dismayed when people use overall spending as an indicator for measuring online or offline advertising,” he says. The dollar figures lack context for how effectively advertising is deployed in any given year. “It’s always a moving target.”

Wharton economics professor Devin G Pope looked, not at spending, but at numbers of ads and effectiveness during his research into the impact of Craigslist, the online classified ads service. Pope and University of California Berkeley collaborator Kory Kroft found that the online classified ad site Craigslist, where it was available, reduced by nearly 10% the number of newspaper classified job listings between 2005 and 2007. “It not only crowds out those classifieds, it appears to be more efficient,” with significantly shorter listing periods for the Craigslist ads versus the newspaper classified ads, Pope says. For example, rental vacancies for Craigslist-listed apartments were shorter than those not advertised on Craigslist.