Why online display advertising may be down in 2009. December 4, 2008Posted by jeremyliew in advertising, recession.
Henry Blodget has been saying for some time that online display advertising will be down in 2009.
For a year, we’ve listened to analysts passionately explain how online ad spending will power through any broader economic and advertising weakness. Eyeballs are moving online, this story went (goes), ad dollars will follow. Online advertising is accountable. Online advertising is the future. Blah, blah, blah.
It’s time we woke up and faced reality. Online display-ad spending will fall in 2009, probably sharply. It will probably fall again in 2010…
How bad will the online display ad market fare over the next couple of years? At this point, we would estimate at least a 10% drop next year and probably more. (20% is not inconceivable). Again, the overall market fell 25% from 2000-2002. There are many reasons why this falloff should not be be so extreme–namely, that half of online ad customers won’t go bankrupt this time. On the other hand, there are many reasons why this falloff could be worse: The general economy is going to get clobbered in this recession–something that didn’t happen last time.
His projection is at odds with most other projections, which mostly see slowing growth. As PaidContent noted last week:
Citing severe deterioration in the economy, eMarketer has dramatically reduced its 2009 online ad spending projections to only 8.9 percent growth, compared to the 14.5 percent gains it estimated in August. The revision was prompted by the latest Interactive Advertising Bureau and PricewaterhouseCoopers tally of online ad spending, which said last week that web-based advertising grew 11 percent in Q3 to $5.9 billion. And so, eMarketer now expects online ad spend to hit $25.7 billion next year, while it anticipates 2008 to finish up with $23.6 billion.
I’ve been receptive to Blodget’s view for some time, but had not heard a good explanation for why online advertising may shrink. His projections had been based on extrapolating trendlines rather than on identifying the underlying cause of a drop in online spending.
Today though, the chief digital officer for one of the big advertising agencies gave me a reason. He pointed out that with in ad recession, ad rates for traditional media have fallen dramatically. It’s now much cheaper to buy print, TV, radio and outdoor than it has been for some time. In an ad recession there is a flight to quality, and a flight to familiarity. Just as no one ever got fired for buying IBM computers in the 90s, so too, no media buyer is going to get fired for buying 30 second spots on ABC or full page ads in People. Especially when she is doing so at a big discount.
This dynamic, coupled with lower overall budgets, could create a temporary reversal in the secular shift from offline media to online media. Brand advertising is most likely to be at risk because it isn’t measureable. Direct response advertising (including search) will continue to see online taking share from offline.
As I’ve said before, it won’t be dark for all online media companies. Some online media companies will do better than others through this recession. But Blodget’s prediction just got a little bit more real for me.