I’ve been spending a lot of time in the past couple of weeks talking to reporters about the ailing economy and whether or not the slow market will affect the online advertising market. As I’ve said before, advertising spending is linked to GDP, and if GDP drops, so does advertising spending. But the online market continues to grow at something around 19% annually.

However, I haven’t been prepared for the react quotes that I’ve been asked to give. This is the outgrowth of dabblers jumping onto the “ailing economy” bandwagon and adding a “and what does it mean for Google?” spin.

So let’s say — for the sake of argument — that someone has said that internet searches are declining. It’s a logical hypothesis that people have less money to spend in a recession. With less money, they spend less time searching the internet. And fewer searches mean lower revenues for Google.

Which seems passable for the average college graduate. It will also fly in Ms. Hebert’s third grade class. But it doesn’t make for strong analysis.

1) Data sources

How do you know that internet searches are declining? As in who’s giving you this data?

The commonly accepted measurement authorities are Nielsen (NetRatings) and ComScore. Neither of these sources are infallible, and some research teams prefer one over the other. In many cases, data from these two companies doesn’t agree and can vary significantly (say 30-50%) from what many publishers collect from their webservers and third party ad servers. This is known as “discrepancies.”

And if, for example, someone from Yankee Group decided to make a statement about internet searches and their growth, chances are that they’d rely on one of these data sources.

Anyone who tells you otherwise is simply making it up.

2) Consumer behavior

There are many ways to track consumer behavior: economic indicators such as consumer spending in various sectors; corporate revenues; wallet share; time spent; and surveys. Like many firms, we take the latter approach and use established survey panels for numerous questions about technology adoption, spend and consumption patterns.

And yet, internet search, like other media, is best left to media measurement firms. Nielsen data is more accurate and consistent than what we could find in a consumer survey.

3) Do Consumers Search Less When They Have Less Money To Spend?

I don’t know. There’s an easy way to track this — take internet search traffic volumes and check to see whether that variable is independent of consumer spending over time.

We know that search traffic goes up and down over time, and even as recently as this time last year, there was a drop in internet search in November. What caused that? Again, I don’t know. It could have been the economy. It also could have been an unseasonably warm spell. College football season. A meteor shower.

Either way, I could make an equally-valid argument that consumers with less money to spend are likely to spend more time online researching their purchases in advance. So internet search traffic could go in just about any direction: up, down, or remain flat. And the more important metric of the number of internet searches per $1,000 of consumer spending could go up.

4) How Big Is Internet Search?

For the record, internet search advertising accounted for $9.5 billion of the $21.2 billion US online advertising market in 2007. The US advertising market accounts for 42-45% of the global advertising market, so it’s reasonable to suggest that the global internet search advertising market is in the $20 billion range. For the US market, the Interactive Advertising Bureau (IAB) is the authority for market size and ad standards.

5) The Devil Is In The Details

And the details are the mechanics of search advertising.

Let’s take Google AdWords as an example. There are two very simple aspects of AdWords:

1. that the advertising is sold in an auction, and you can specify the amount you’re willing to pay per click (PPC/CPC), and
2. marketers can specify the total amount they want to spend in a given time period.

If you were to look at the search advertising market from the perspective of a marketer, you’d see an altogether different dynamic in the face of moderately declining (on the order of 5%) internet search volumes — rising prices.

Google sells on a cost-per-click basis. So you only pay for the clicks. And if there are fewer clicks, then more marketers are competing for the same inventory, driving prices up.

Which is what I’ve seen happen recently with AdWords. It’s hard to extrapolate from anecdotal information here without detailed information from Google. But let’s just say that fewer consumer internet searches would reduce the volume of search advertising inventory. Increased competition for a smaller pool of search inventory should raise prices across the board.

And if that doesn’t happen, Google’s yield management team could easily insert themselves in the process to raise prices enough to keep revenues on track.

So there you have it. Within reason (outside drastic GDP shifts over several quarters) the market mechanics for internet search will likely keep traffic and/or revenues up even in a slower economy.