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WSJ says experimental ad budgets are getting cut October 15, 2008

Posted by jeremyliew in advertising, virtual goods.
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Last week I posted on which online media companies will survive the ad recession and noted that experimental budgets are the first to get cut. Today’s WSJ finds evidence that this is already happening:

In recent years, marketers have set aside a portion of their ad budgets to experiment with digital technologies such as Web video, mobile phones, gaming and virtual worlds. But with broader economic turmoil reaching Madison Avenue, these “experimental” budgets are among the first to hit the cutting-room floor.

Chrysler LLC has already slashed its experimental ad buys. With each ad dollar facing additional scrutiny, especially in the hard-hit auto industry, these ad buys will now make up about 5% of the auto maker’s marketing budget, down from as much as 10% in previous years, says Deborah Meyer, Chrysler’s chief marketing officer.

In good times, the maker of Chrysler, Dodge and Jeep brands tapped technologies like gaming and mobile to build awareness of its vehicles. “We won’t experiment in a lot of things that are fun to have. All of our dollars have to go to hitting in-market shoppers with the appropriate media,” Ms. Meyer says.

Areas like mobile, virtual worlds and widgets are expected to be hit particularly hard, as it remains unclear what kind of impact ads in these media have. These campaigns often reach a small number of people, and standard measurement systems have yet to be developed. “When we get into the need to drive results, you can’t spend money on the experiments and hope to keep your job and get your sales goals,” says Peter Kim, senior partner at Dachis, which advises marketers such as Philips Electronics NV’s Philips Healthcare and Johnson & Johnson on marketing strategies.

If you’re trying to sell advertising that isn’t standardized, you should read the whole article.

As an aside, the article suggest that in game advertising and virtual world advertising will be affected as a subset of this trend, making virtual goods even more central as the business model for games and virtual worlds:

Ad executives say creating an entirely new form of advertising to put in untested places like virtual worlds — or three-dimensional online computer games — may not be worth the effort in tough advertising times. “Virtual worlds are probably one of the things that haven’t been proven effective just yet. I can’t see us selling virtual worlds to anybody right now,” says Lars Bastholm, an executive creative director at independent digital marketing shop AKQA.

Comments»

1. Chris Perry - October 15, 2008

Jeremy, do you see this impacting a lot of your portfolio companies (e.g. Flixster and RockYou) that you mentioned in your post last week? It’s unclear to me as to whether or not the WSJ groups these companies into the category of “widgets” and whether or not their buys were coming from experimental budgets.

2. jeremyliew - October 15, 2008

Chris, the key is selling standard ad units. Both Rockyou and Flixster do this (IAB standard display ads) and so far revenues are holding up. It is the “new forms of advertising” that pull from experimental ad budgets (versus from standard media buy budgets) that are most at risk. See also my previous post on which other companies are at risk in a media recession:

http://lsvp.wordpress.com/2008/10/06/which-online-media-companies-will-survive-the-ad-recession/

3. Which online media companies will survive the ad recession? « Lightspeed Venture Partners Blog - October 15, 2008

[...] UPDATE: WSJ also finds that experimental budgets are getting cut [...]

4. gudgud - October 16, 2008

Jeremy,

I have a contrarian comment posted by someone on my blog

“I dont agree with this sentiment. Yes there will be a reduction in overall spending … but in tough times vehicles whose performance is easier to measure should do well.

Contrary to these articles I think we will see overall reduction in ad spend for TV and other traditional categories, while an increase in spend for the internet based ads.”

While the responses to Internet ads are measurable, in-game advertising is not measurable today, although it will become measurable in the future with the rollout of Google’s AdSense for games. Until then it seems like the theme from Sequoia’s slide deck will have to dominate our investment and expense management regimen.

Sumit Sharma (gudgud.wordpress.com)

5. Roadmap to the Virtual World » Blog Archive » Virtual Recession - Whose Heading for the Door? - October 17, 2008

[...] the Journal isn’t freely available, here’s a link to a reporting of the article by Jeremy Liew on the Lightspeed Ventures [...]

6. What would Facebook look like if it sold out to ads? Click here to see… | Futuristic Play by @Andrew_Chen - November 4, 2008

[...] Liew recently referenced a WSJ article on experimental advertising which states that this budget is getting slashed as the recession develops: In recent years, [...]


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