Is the Future of Online Advertising in Danger?
The Internet?
In the current economic situation all forms of marketing have suffered a serious blow. The latest numbers suggest that while all marketing media has suffered under the strain of a recessed economy, online advertising growth in particular is softening.
Since the tech and dotcom busts of the 90′s online ad revenue has grown at a staggering pace. The decline of the housing and credit markets, however, has finally spilled over into all sectors. According to the most recent numbers published by the Interactive Advertising Bureau and PricewaterhouseCoopers, online advertising was sliced by 50%. With growth now at 10.6% it is evident that online ad sales have hit a plateau of $23.4 billion. Q4 sales reached $6.1 billion, showing only a small gain of 2.6%
This is the smallest fourth-quarter gain in seven years. The stunted expansion was caused primarily by bleak holiday retail sales and the strained budgets of the biggest advertisers. 51% of ad dollars were spent in the fourth-quarter season, and this is also the smallest percentage for Q4 sales since 2002.
It is clear that the economy has an immediate impact on ad sales; however, David Silverman of PricewaterCoopers suggested during a recent webinar that the growth of the online ad market, despite the softening economic situation, indicates the strength of online advertising as a viable marketing strategy.
This comes as a hard pill to swallow for investors who have seen 25% gains in recent years, thanks to advances in Web 2.0 that fueled a massive expansion in online ad revenue slip down to single digits.
They wouldn't be smiling if they knew what the future of the Internet was.
In 2008, experts predicted the numbers of online advertising sales to remain static, however the more current estimates predict a decline for 2009. A slow, steady decline is expected this year. Dr. Kedrosky, an economist at the Global Hollywood Conference, warned about declines of nearly 10%, as traditional sources of ad sales go into a similar downward spiral.
Some more optimistic sources, such as Jeff Lanctot of Razorfish, say that a static 2009 would be the goal to strive toward, and many analysts have not given up hopes of small growth in the sector. Still, with the depressing numbers from the IAB, many research firms and analysts, like eMarketer, are lowering their expectations for 2009.
Some online advertisers have begun looking for more quantifiable sources of revenue. Search went up 4% in 2008, and performance based advertising grew 6%. This is a shift towards ad sources with more accountable revenue. Analysts expect this trend to continue throughout 2009, and expect this area to grow until the economy firms enough to encourage more entrepreneurial sources of online advertising again.
Display advertising has seen a large slump in sales since 2008, yet it still remains a firm 33% of online spending. Digital video advertising went from 1% to 3%, showing a dramatic increase, despite contributing such a small portion to online ad sales. As video compression techniques improve this area is expected to continue to see growth.
As newspapers continue to face extreme economic strain, classified advertising dropped a hefty $100 million, or about 2% from previous totals. From the industrial sectors the largest contributor, retail, had the biggest losses. Retail ad sales fell from 25% to 22% of spending dollars.
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Sue on Mon, 30th Mar 2009 8:40 pm
Smart marketers use smart advertising during a recession. Clearly the boom market advertising methodologies don’t necessarily apply in leaner times. Smart marketers need to reduce advertising waste, measure twice and cut precisely in the areas which will provide the most ROI. More and more marketers are moving to a pay-for-performance model for their advertising. Cost Per Action, Cost Per Engagement and other specifically measurable performance-based marketing models are the key to efficient and effective marketing in this economy. Don’t stop advertising, just be smarter about how, when,and where you’re advertising.
John on Tue, 31st Mar 2009 10:25 am
I agree with Sue – treating websites as another general mass-media broadcast channel will lead to ads that aren’t particularly effective (not more effective than TV or radio). Some of the big sites are going to have to focus in on specifics that their visitors are interested in if they want to survive without additional investment.
Joseph J Gomez on Tue, 31st Mar 2009 11:30 am
I agree with Sue above about being smarter with your advertising dollars since everything is about cost efficiency. I work as an online advertising rep for a company called Local Ad Link and the max program (as of this writing) is $200/month. You get to add pictures, videos, and coupons. A really cool demonstration can be seen at http://www.productoverview.info. If you have any questions about it, I can be reached via http://www.leads2income.net
Online Advertising on Sat, 4th Apr 2009 10:42 am
When compared to traditional advertising it becomes obvious the objective of marketing.
Marketing is not what generates a sale or closes the sale. Marketing in any business is to attract a potential customer.
It is the responsibility of the business, be it bricks and mortar or online to close and complete the sale.
So the question is, will advertising decline? Well to answer that question then simply ask yourself, does your business still need a flow of potential customers?
If there is a replacement for advertising, online or offline, then maybe.
Sure businesses have tighter budgets now, but should they increase their potential customer flow or let it dwindle in times of recession?
Simple answer, never let the customer flows dwindle. Cutting costs and expenses is important when revenue drops, but cutting expenses will not cause revenues to increase. Only increasing customer flow or web traffic will.
Cost per click and Cost Per Action Online Advertising is a wiser investment now more than ever as businesses begin to measure the quality of marketing efforts and the ROI.
Chris on Mon, 27th Apr 2009 10:19 am
I don’t agree that this industry is in danger. In fact, I think now is the time for companies to be investing in search engine marketing and looking at social media as a possible strategy. The number of people looking to the web for information. With a little creativity and some time online marketing has the potential to carry your business through the recession.
My company does online marketing for national campaigns. The first part of this year was slow, but we’re seeing things pick up now and are looking for a strong summer.
Bottom line, as long as people are using the web, companies will want to advertise there. Strategies will always change, but this industry is here to stay.