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.

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