There’s much sturm und drang about online advertising, and whether it’s in a big hole or a *really* big hole. Judging by the graphic of a giant smoking crater he used for his post, Peter Kafka at All Things D apparently falls into the latter camp, and he also quotes Nick “The Dark Lord” Denton as saying that anyone who doesn’t expect ad rates to fall 40 per cent is an idiot (although, to his credit, Peter does note that Denton is always saying things like that). But one of the reports that everyone is using for fodder, which comes from the Rubicon Project, isn’t that bleak at all.

If anything, in fact, the Rubicon report indicates that online advertising is still growing relatively strongly despite the turmoil in credit markets and the slump in stock prices, and could even benefit as advertisers look for more quantifiable results for their spending, which online ads provide. The report also says that while overall ad rates tracked by the network dropped 11 per cent in the quarter:

“performance varied by network type and channel. Several channels experienced greater than 25 per cent lift in CPMs from Q2, while others dropped by almost 20 per cent.”

To me, that sounds a lot like a flight to quality, which is hardly surprising. Until recently, I think a lot of companies were basically throwing money wherever they could online, regardless of the quality of the ad network or the sites involved, and regardless of whether using banners or pop-ups made any sense or not. Perhaps now they are being a bit more choosy when it comes to spending their money online. Rubicon also notes that in the “news and reference sites” category, ad rates outperformed just about any other market, with CPMs up by 36 per cent.

Before everyone starts berating me for taking Rubicon’s word for it, I realize the company is an “ad-network optimization” service, and therefore has a vested interest in showing that online ads are growing. But at the same time, the data it is using come from more than 270 ad networks and about 30 billion impressions, which at least gives them some claim to valid information on what rates are actually doing. And J.P. Morgan says it sees online ads continuing to grow as well, just not as quickly.

I’ve been doing my best to remain calm, but I have to confess that it isn’t working as well as it usually does. I’m speaking, of course, about the tsunami that is currently wreaking havoc on the traditional media business, an industry in which I happen to have spent virtually my entire working life. The earthquake that created this particular tsunami occurred ages ago, and those who were paying attention have long since headed inland to safety, but the shock waves are now starting to hit with real force, accelerated by the economic uncertainty all around us.

Bad news has been trickling in for months, or even years — newspapers cutting back staff, closing editions, companies on the ropes financially. But it’s been a thousand small cuts, mostly at smaller publications, and so it hasn’t really had as much impact as it might otherwise. It seems to be accelerating though, and now it’s not just small papers or magazines but ones that everybody has heard of. It hit home recently while reading through a summary of industry news that I get daily from the folks at I Want Media. Here’s a sampling of recent headlines:

– “Newark Star-Ledger cuts 40% of staff”
– “TimeWarner to cut 600 jobs in magazines”
– “Gannett to cut 3,000 newspaper jobs”
– “Orange County Register to cut 110 jobs”
– “LA Times cuts 10 per cent of staff”
– “Thomson Reuters eyes massive layoffs”
– “Washington Post profit falls 86 per cent”
– “New York Times debt cut to junk”

In Canada, there have been layoffs at the Toronto Star, and the National Post just announced that it will no longer publish a weekday edition in Manitoba and Saskatchewan. Several magazines have also stopped publishing, including Masthead magazine, which covers the magazine industry. Compared to what’s been going on in the U.S., Canada seems to have remained relatively unscathed, and as far as I can tell the atmosphere at the Globe (where I work) is cautiously optimistic. But the unrelenting cascade of bad news does tend to make the palms a little sweaty regardless.

For what it’s worth, I think journalism itself — broadly defined — has never been stronger. To see things like the Huffington Post and Politico.com spring up from virtually nothing and become media powerhouses in their own right is a tremendous thing, and I have no doubt that the Christian Science Monitor could do the same without much trouble, now that has cut itself free from newsprint and publishing and trucks and all of that. But it’s still difficult to watch the kind of wrenching change we’re seeing this entire industry go through. Evolution can often be ugly.

Update:

My friend and former colleague Richard Siklos (we were both summer interns at the London Free Press about 20 years ago) seems somewhat more sanguine about the fate of the newspaper business. And don’t get me wrong — I think the newspaper business is going to be around for a while; I just think it’s going to employ fewer people, and while it may involve roughly the same amount of news, it’s going to involve a lot less paper. On a related front, Pat Thornton of Journalism Iconoclast did an interview with John Yemma, editor of the Christian Science Monitor, about the paper’s decision to go Web-only and what that means.

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.

I was going to call this post “Decoding the Microsoft memo,” but my friend Kara Swisher has that kind of trademarked already, and I don’t want to owe her any more money than I already do. But reading through the missive from CEO Steve Ballmer that she has posted made me long for someone who could translate it into English, because I don’t think Monkey Boy and I are speaking the same language. It’s not just the egregious use of euphemisms either; there are points where what Steve is saying — about the separation of the Platforms and Services division into two units, for example — shows a fundamental confusion about what Microsoft wants to be when it grows up.

I can’t remember whether Steve used to work at a car company before he joined Bill Gates at Microsoft (I’m pretty sure he worked at Procter & Gamble) but there sure is a lot of talk in the memo about driving. One of the company’s core goals, for example, is to “drive end-user excitement for our products.” My translation of that would be: “Come up with some way to force people to buy Vista and Office, whether they want to or not.” What the hell does “drive end-user excitement” even mean? I’m hoping it has something to do with building better products, but it’s hard to know for sure. Sounds like a blank cheque for the marketing department to come up with some happy videos of families smiling and using Vista to make Grandma a birthday card.

A couple of paragraphs later, Ballmer says that the company needs to “drive developers to create rich applications for Windows” to help promote Silverlight (Microsoft’s version of Adobe’s AIR). How do you “drive developers” to do something? Obviously there are incentives you can offer, but it seems to me that the best way to convince developers to come up with cool apps is to have a great platform that allows developers to do interesting things and reaches the audience they want. Apple seems to have developers beating down its door for access to the iPhone, despite the fact that it often treats developers like crap.

Just a few paragraphs later, when Steve is talking about software and services (which is what Microsoft calls “software as a service” or Web-based applications) he refers to “driving change in business models through advertising, subscriptions, and online transactions.” Once again, it sounds like Microsoft believes it can force people to do things through the correct application of pressure, incentives, marketing, etc. More than anything else, it sounds like a memo from some government ministry in a centrally-planned economy. The people say they don’t want more potatoes? Then we must “drive change in potato-consumption models through taxation and random beatings.”

I more or less skipped over the parts about competing with Google by “out-innovating” them through “organic innovation,” which I think refers to a secret recombinant plant-DNA program Microsoft has going in upstate Seattle. And I can’t bear to talk about the part where Steve discusses the Yahoo debacle, which he describes as “a tactic, not a strategy.” Parse that one if you dare — I’m not going to. But towards the end, Ballmer talks about splitting Platforms and Services in two, and says there will now be the Windows/Windows Live unit and the Online Services unit. He might as well have said that the company has decided to set up one unit called the Ego and another one called the Id.

You might think that the Windows Live unit — which has to do with Windows Live Mail (formerly Hotmail) as well as the newer online Office-type offerings — would fit pretty well with something called Online Services, but you would be wrong. Online Services, as far as I can tell, has to do with search and advertising and MSN, all things that are more or less either weak or failing. The Windows Live business is aimed at pushing more of Microsoft’s products online in some form or other, whereas the Online Services unit is focused on taking things that already exist online and somehow making them work better. The fact that Microsoft sees those two goals as mutually exclusive says a lot — it’s like the embodiment of the company’s bipolar disorder.

But don’t worry about Microsoft’s future — Steve says he is putting things in place to “drive the next generation of growth and success.”

There’s a fascinating piece in the New York Times looking at IDG — the world’s largest publisher of tech-related magazines — and how it has been transformed from a print entity into what has increasingly become an online-only entity:

“In 2002, 86 percent of the revenue from I.D.G.’s publications came from print and 14 percent online. These days, 52 percent of the revenue is from online ads, while 48 percent is from the print side.”

That’s a remarkable shift. In some cases, magazines continue to be printed but come together primarily online, and in other cases — such as InfoWorld — the print magazine has been closed completely and the publication is solely online. And the business is better:

“Today, I.D.G. says, the InfoWorld Web site is generating ad revenue of $1.6 million a month with operating profit margins of 37 percent. A year earlier, when it had both print and online versions, InfoWorld had a slight operating loss on monthly revenue of $1.5 million.”

There is a dark lining to the silver cloud, however — the story says that IDG’s staff levels are 50-per-cent below where they were when the transformation started:

“By then, the editorial staff was down to its current level of 17 people, about half the number in 2002, and way below the peak of nearly 100 during the technology spending boom of the late 1990s.”

Still, a fascinating tale of one publisher that took the bull by the horns and made the change deliberately. As former editor Stewart Alsop says near the end of the piece: “What’s happening at I.D.G. is a fairly accurate map for every other publishing organization. Get over it, it’s going to happen.”