Is online advertising heading for a cliff?

by Mathew on October 6, 2008 · 29 comments

As the markets see-saw between concern and outright panic over the fate of the U.S. financial bailout, the credit shock that’s rippling through not just North America but most of the Western hemisphere, and the potential for a severe economic downturn, anyone with a Web-based business that depends on advertising has to be asking: Is this the beginning of the end? If the U.S., Canada and to some extent even Europe are in the depths of a recession (or possibly even worse), what does that mean for online ad spending? The answer could mean life or death for some startups.

This debate has been going on for almost a year now. Google’s stock price came under fire around the end of last year and the beginning of this year because of concern that the search giant might see a downturn in ad spending that would hit the bottom line. Has it? A little, but not a huge amount (although some say that could change). In fact, there are those who argue that search-related ad spending is likely to be the most durable even in a shaky economy — in part because businesses can get more bang from buying AdWords than a newspaper ad or TV spot.

So what about the rest of the online ad market? In June, representatives from Seeking Alpha, TheStreet, comScore, BankRate and Forbes said that they were seeing media buys that were smaller and more short-term. However, Web ad spending in the U.S. was one of the only ad sectors to grow in the first six months of this year, and the IAB says that Britain saw higher than expected growth as well. (Update: The latest numbers from the IAB show that online advertising rose by 15 per cent in the first half of the year). Many marketers believe that online advertising has actually been benefiting from the economic uncertainty, as advertisers look at the Web as more measurable and effective.

Svetlana Gladkova at Profy says that the concern about advertising in the wake of a sour economy led her to take a look at what happened during the Great Depression, and she found that to her surprise, the advertising business was actually pretty healthy during those years. Are ad-dependent businesses going to sail through the economic turmoil without a care? Hardly. But an online-advertising apocalypse doesn’t seem terribly likely either. If anything, it seems as though traditional media should be the one feeling twitchy at this point. The competition could be intensifying.

  • http://carrieanddanielle.com Daniel Gibbons

    My take on it is a little different. Online advertising won't plummet off a cliff, but its growth also won't keep up with the growth in inventory. Growth is obviously better than no growth, but in general publishers will make less money even as overall dollars increase or hold steady.

    The start-ups that have revenue projections that assume the revenue curve will track their traffic growth will be hit by this and have to scale back or raise more money.

  • Steve

    Not finding anything of substance in this article.

  • http://www.sequentiaenvironics.com jen evans

    I'm at the marketingsherpa B2B conference in Boston as I type this, and search was everywhere today. Wanted to comment on paid search.

    I doubt that paid search is going to decline in the short term – and I see room for expansion even in the long term. Trends coming out of the presentation included signficantly increased competition for keywords (good for google since they are auction based), meaning higher search costs – which might be an indication that the search market is starting to overprice itself, except that many of the presenters also reported improvements in cost per acquisition or conversion due to improved search fulfillment. One of our clients used to spend $2K a month on Google, and is now spending $20K/month without batting an eyelash because the returns are there.

    Many of the presentations today focused exclusively on search, and *all* of them included some element of search. These are some of the most forward-looking but pragmatic online marketers in the world, and they're bullish on paid search.

    As a marketer, it doesn't seem to me that this is a part of the mix on the decline; in fact, under challenging economic conditions, i think it's likely to expand due to its comparatively low cost, powerful ability to target and budget, and low risk.

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  • http://www.mathewingram.com/work mathewi

    Sorry to hear that, Steve. Try reading another article — perhaps one on someone else's blog.

  • http://www.mathewingram.com/work mathewi

    I think you're probably right, Jen. Thanks for the comment, and the info.

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  • Auldsod

    Google adds are the ONLY adds I don't mind, because they aren't “in your face.” I can't stand these flashing, intrusive adds and on principle won't buy anything advertised in that way.

  • http://www.profy.com/ Svetlana Gladkova

    Mathew, good to see there are people that are trying to stay reasonable instead of panicking because of every bad sign we see on the horizon. I think you are absolutely right in your prediction that traditional media will be hurt the most as advertisers will move online looking for cheaper alternatives combined with measurable efficiency of advertising. And many newspapers have already started to report problems with their revenues while many web businesses seem to cut expenses kind of in advance to prevent the hit should it come.

  • http://mrinal.vox.com Mrinal

    Crisis, imho, is another term for opportunity. If you deliver value and are a need or have “become” one (from a want), its a time to differentiate and stand out.
    CPC and CPA would certainly seem more compelling since that measures results.

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  • http://jasonkolb.com jasonkolb

    Yup, it will definitely contract. We're going thru a deflationary credit collapse, and anything that's not necessary for survival will be (is) going down in value. Not as much money to pay for it = lower price. Online advertisers are rarely selling the bare essentials of life, which means their prices will have to come down. As their prices come down, the rates they are willing to pay will also come down. As the rates they pay come down, and many advertisers go out of business, the companies that are funded by online advertising (a la Google) will contract as well.

    I would have thought this was obvious. Go read Valleywag, the number of Googlers whining about losing perks is astounding. Google is obviously feeling the hurt, and with the downward pressure on advertising budgets I seriously doubt this trend is going to reverse anytime soon.

  • http://purplemotes.net Douglas Galbi

    Between 1929 and 1933, U.S. GDP fell 46% and total advertising expenditure fell 54%. See
    http://purplemotes.net/2008/09/28/more-on-histo

    Doesn't look healthy to me.

  • http://www.mathewingram.com/work mathewi

    Thanks for that, Douglas. I agree that doesn't sound all that healthy.

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  • http://www.storyofmylife.com/antje antje wilsch

    I hope all search doesn't just stay in PPC and crappy banners. I'd like to see a lot more targeted search, and better options for ads etc.

    I think there a lot of opportunity out there yet to be discovered. Haven't seen anything too new or exciting in a few years now. One ad sequence I saw was pretty brilliant, for that serial killer-does-good tv show but other than that -all ads are still pretty damned boring.

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  • vishtaspa

    Actually this article is what I have been searching for, I have been searching net for similar article for hours and was happy to get to this page.

  • http://goandychurch.blogspot.com Andy Church

    Not sure one can make a cause and effect projection. Defending a print or TV ad budget that can not be directly linked to revenue or sales has always been a tough business. With adwords and affiliate marketing providing measurable return on investment, marketers are in a much stronger position to defend their online media spend. If I am told to cut my marketing budget, TV, PRINT, radio and trade show events are the first to go. Online advertising? Unless the world goes completely in the tank, we still need to keep fueling the sales beast. If anything, I see overall marketing dollars falling, but the total share of online advertising maintaining or perhaps growing in a down economy. Time will tell.

  • Gebhino

    because the web is so measurable and there are now powerful tools that allow a high and effective level of targeting, online won't suffer too much

  • http://www.blogads.com henry

    Saying “some companies spent and thrived” is not at all the same thing as saying “advertising thrived.”

  • http://xtremax.com Web Design

    I see even the big giants spending much on this. I see this as the new battlefield. The most interesting part is it provides level playing field for all the candidates. Even with small budget, companies can run their campaigns parallel to dominating corporate leaders.

  • http://trafficgeyserseo.com/ Traffic Geyser

    advertising and online marketing has been slightly affected by our economy but still its going strong because of the demands and people nowadays looks forward on how they can save time and money and going online is one of the fastest and cheapest ways to get what you wanted..

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    I digress traffic geyser. In fact, the online marketing is gaining benefits from the economic crisis as people on traditional advertising are opting to join the online bandwagon for free or cheap ways of advertising. Various online marketing methods are continually on the rise, from blogging to the more complicated website conversion optimization.

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