Christmas fails to click with Google

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At £348 million, sales growth in Britain halved on its rate a year ago to 5% in October, November and December.

The dismal figures triggered widespread fears about the whole online advertising and marketing market, given Google's massive dominance.

Many advertisers have shifted their spending to the internet, but the credit crunch and concerns about consumer confidence is clearly starting to hit. Travel and financial services firms reined in their spending hardest.

The poor UK numbers emerged today after last night's admission from the company that its overall results for the quarter had been disappointing. Shares in the group tumbled by 8% on Wall Street.

Chief executive Sergey Brin's protestations that Google was not being hit by the looming US recession cut little ice with investors. Brin said that even if the US economy deteriorated further, advertisers would still find its paid search listings a more attractive place to spend their marketing dollars.

Google, which derived nearly all its $16.6 billion full-year revenue by selling pay-per-click online advertising, said overall growth of paid clicks slowed to 30%, half as fast as the 61% growth rate in the fourth quarter of 2006.

The disappointing figures were only the third time the company has failed to meet market expectations.

Some analysts believe Google's poor sales growth in Britain may also be due to the online advertising sector's relative maturity here. The proportion of advertising spent online is 15%-17% in Britain, compared with 6% in the US.

Meanwhile, Terry Semel today left the board of arch-rival Yahoo, having already been ousted as chief executive last year.

Yahoo earlier this week cut its revenue forecasts in a move that foreshadowed the Google numbers. Semel was credited with reinvigorating Yahoo but then, as it struggled for traction against Google, faced accusations that he had lost touch with the business. Shareholders were also angered when Yahoo gave Semel a compensation package worth $71.7 million (£36.1 million) in 2006 - the same year Yahoo's market value plummeted by 35%, or about $20 billion.