jump to navigation

Why online display advertising may be down in 2009. December 4, 2008

Posted by jeremyliew in advertising, recession.
trackback

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.

Comments»

1. CoryS - December 4, 2008

Jeremy,

I’m with you. What we also need is visibility to existing v. new account business for Google and Yahoo to better understand ‘comparable ad sales’. In retail, when a new store goes up, the chain is bigger, but that doesn’t imply growth in its core business. We may have missed a leading indicator that comp ad usage was already going down, but was masked by more new account activity. Since we don’t see the business in any detail, I have no idea.

I’ve got some other thoughts on a blog post on the link.

2. Jay Gould - December 4, 2008

Interesting perspective.

3. Jason - December 4, 2008

Agreed, marketers now care more about ROI, advertising professionals should think of creative performance based delivery

4. Ted Rheingold - December 4, 2008

We’re with you and Henry on this one. Any entrepreneur that thinks they’ll get easy revenue selling web real estate to advertisers in 2009 because reports in early 2008 showed advertiser dollars moving to the Internet should give up their endeavor immediately.

As you’ve already pointed out the bulk networks are going to race to the bottom. Even AdSense is desperate. They are pushing dubious advertisers very hard in a way they never have before.

We’re still getting a good number of RFPs for 2009 (2.5x more than last year) which are leading to a steady but guarded flow of IOs. As you also have pointed out there is still a strong commitment to getting great targeted placement (it’s all about finding access to high volume of golden households) but each and every campaign is going to have to be earned and proven.

I actually still expect the Internet advertising spend to be up overall for 2009 because there are so many established destinations that are becoming as reliable and trusted as TV or print, but the amount left over for bulk impressions and scatter shoot campaigns will be very little.

5. Aditya Vuchi - December 8, 2008

This is an interesting perspective. However, it misses the important piece of drawing a fair comparison between the pricing fluctuations in the online space as well, which will go down too. While it will be cheaper to buy a 30-second spot on ABC, it will be comparatively cheaper to buy a banner on abc.com. I agree that the online component may be lagging in doing a price match with its offline sister channels, but it wont be a huge time gap. If there is one thing the online advertising’s explosive growth (as an industry) has achieved in the last few years is the acceptance as a conventional marketing channel. It is no longer innovative (or “forward”) to market online.Media buyers buying online will be subject to the same performance yardstick as the offline partners. To somehow think that “Online Marketing” is an add-on is a fallacy.

6. ThisGlobe.com » Blog Archive » Whither 2009 Online Ad Budgets? - December 13, 2008

[...] Why online display advertising may be down in 2009. [...]

7. اس ام اس جوک جک - January 7, 2009

i agree

thank you very much

8. 2009 Online Advertising Forecast - Dogster, Inc. » Dogster Inc. Company Blog - January 22, 2009

[...] In fact high-end highly differentiated directly sold inventory will be critical this year to small and medium publishers. Last year ~17.5% of our monthly revenue came from high-end ad networks but this year we’ll be lucky if we can get 8% from the hurting networks. Advertising-based publishers will sink or swim this year based upon their volume of directly sold ads – or have to find new revenue streams – as network ad revenue is only going to be able to float the most e-fish-ient of boats. 2009 online advertising spending forecasts are still expecting at least nominal growth in 2009, but there is theoretical dissension. [...]

9. richclark - March 28, 2009

Good post with some interesting perspectives.

Display is probably the most under threat area of online advertising. Advertisers that understand ROI should see their budgets on PPC and affiliates stay static or increase. Display is often unproven or trying to be justified on ‘soft metrics’.

I discuss some of the pitfalls of display advertising on my blog

http://richclark.wordpress.com


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 25 other followers

%d bloggers like this: