New research data shows that online advertising is beginning to run out of steam at what could become a turning point for the industry. Many analysts have been concerned that such trends would continue as the industry began to mature, but the decline in consumer spending could expedite the process as fewer consumers click on ads while more publishers are looking to fill ad inventory. The big question is whether or not this trend will be permanent.

Citigroup's Mark Mahaney is one such concerned analyst and reduced his price target on Google Inc. (NDAQ: GOOG) this morning amid concern that there is deterioration on paid click growth. The reason? ComScore, which measures online trends, released its January 2008 qSearch paid click report that showed a 7 percent sequential decline versus December 2007 and a flat annual growth in paid clicks for Google. More, the number of paid clicks per Google search query declined by 8 percent. This is clearly bad news for intermediaries like Google that rely on transaction volume to drive revenues.

Meanwhile, a recent report put out by the Newspaper Association of America showed that publishers are being hit equally hard - especially newspapers advertising online. The report showed that such advertising had slowed down from a 30 percent growth rate during the past three years to just 18 percent now. Unfortunately, the move downward comes at a critical time for newspapers that are under pressure to increase their online revenues as subscription and print advertising numbers decline.

The trend is a disturbing one that could last some time. Consumers that have no money are less likely to click on advertisers and spend money. This means that advertisers are going to pay less per click or banner impression. Given that the supply of publishers is unchanged, this means that there is a lot of inventory with few buyers. Unfortunately, this spells lower payouts for publishers like newspapers and less money for intermediaries like Google. It could end when the consumer situation recovers, but whether or not it will see the 30 percent a year remains to be seen.

Related Companies
Microsoft Corporation (MSFT)
Yahoo! Inc. (YHOO)
Baidu.com, Inc. (BIDU)
CNET Networks, Inc. (CNET)
Time Warner Inc. (TWX)

Ansys Inc. (NDAQ: ANSS) announced today that it agreed to buy Ansoft Corporation (NDAQ: ANST) for $832 million in the form of both cash and stock.

The deal will put both simulation-software companies under one roof while giving Ansys access to Ansoft’s valuable electronic-design automation software – software “used to simulate high-performance electronics designs found in mobile communication and internet devices, broadband networking components and systems, integrated circuits, printed circuit boards and electromechanical systems” according to the press release on the deal.

Under the terms, Ansoft shareholders get $16.25 in cash and 0.431882 share of Ansys stock for each share of Ansoft they currently own – which values Ansoft at a 39% premium to Friday’s closing price.

Ansys will fund the deal by issuing 11.1 million shares of new stock and using $346 million of a credit line with Bank of America (NYSE: BAC). In other words, this acquisition is funded by diluting current shareholders and debt.

Ansys President and CEO James E. Cashman III said, "Both companies have a strong commitment to their customers and employees, and share a passion for the development of innovative products and services and a history of world-class execution. This combination will further strengthen these values and will allow us to better serve our customers by accelerating the delivery of comprehensive, customer-driven engineering simulation solutions and by enabling us to provide high quality support throughout the world.”

Though the deal may better serve customers, in the short-term Ansys expects the deal will only “modestly” help earnings per share but raise revenues to nearly $500 million annually. Only time will tell how Ansys balance the advantages of this acquisition with the dilution and debt that are making it possible.

Related Companies
Synopsys, Inc. (SNPS)
Mentor Graphics Corporation (MENT)
Cadence Design Systems, Inc. (CDNS)
Magma Design Automation, Inc. (LAVA)

The newspaper industry is making the news, but not in a good way. The Newspaper Association of America reported that ad revenues in the industry have fallen by 9.5 percent in the biggest drop in any year since 1950. The decline comes at the heels of an economic slowdown and an increase in online advertising that together have put a damper on the fourth quarter - a peak period for ad sales.

The nation's largest newspaper company, Gannett Company (NYSE: GCI), was one of those hardest hit with a 7.2 percent drop in revenues. The numbers reflect a growing trend in the daily newspaper industry, as more readers flock to the Internet for news. This has led to a decrease in circulation and revenues in print publications around the country that has sent many newspaper companies to 52-week lows.

Many newspapers have relied on their online news services to at least partially offset losses in their print division. These online newspapers have seen revenue growth of 30 percent over the past three years, but the economic slowdown dropped this rate of just 18.8 percent during the fourth quarter. Meanwhile, online advertising revenues for newspapers still only account for around 7.5 percent of total revenues.

One of the solutions to this problem is being offered by Yahoo Inc. (NDAQ: YHOO) of all companies. The search giant plans to roll out a new set of online ad tools for 600+ newspapers that have joined its consortium. Reports have indicated that Yahoo has some 572 people working full-time on the project that could help newspapers successfully syndicate and monetize their content online to offset declining print revenues.

The Yahoo newspaper consortium was formed in November of 2006 and initially involved a combination of its HotJobs help-wanted site with local newspapers. Many saw great success with this program and are looking forward to the company's next beta testing of a platform that will help publishers target behaviorally and geographically across its growing network of newspaper sites. Few details of the new program have been leaked, but newspaper executives are uniformly impressed.

This potential for online advertising in the newspaper industry has prompted some investors to push for a separation of online and print publications via a spin-off of the online divisions. The theory as that this would allow investors to assign a higher multiple to the online segment and allow investors to unlock value. Unfortunately, this would leave the print publication to die a slow death or survive on razor-thin margins.

In the end, the newspaper industry continues to struggle with both an economic decline as well as a move from print advertising to online advertising. The solution to this problem is to embrace online advertising and Yahoo may be the answer for the industry. Meanwhile, many investors are insisting on a series of spin-offs to unlock value for shareholders and enable the online segments to growth.

Related Companies
Media General, Inc. (MEG)
The McClatchy Company (MNI)
GateHouse Media, Inc. (GHS)
Lee Enterprises, Inc. (LEE)
News Corporation (NWS)