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‘Glimmer of hope’ for online ads in recession Monday, December 1st, 2008

Everyone agrees advertising overall is tanking as a result of the ‘GFC’ (global financial crisis), but how online advertising will be affected is a matter of intense debate. The online industry, naturally, is bullish on the prospects for online ad spend growth, but what do the battered finance and political media think? The Economist entered the debate last week, saying that although online ad spending in the US fell by 27% during the dotcom recession, ”the web has changed a lot since 2002. Back then, gaudy display “banners” on web portals such as Yahoo! and MSN were the preferred technology. These still exist, but they now account for less than 20% of online ad spending.”

As they pointed out, more than 50% of online ad spend now goes to search advertising, while in brand advertising, rich media ads are taking over from banners. Because these forms of advertising are easily tracked, spending on online advertising is now “much less speculative, so that it starts to be treated instead as a cost of sales. This is one reason why online advertising should suffer less than other sorts.”

This still leaves the problem of how advertising spend is transferred from traditional advertising to online. As the Economist points out, “At the beginning of the year Jeff Zucker, the boss of NBC Universal, a big television and film company, told an audience of TV executives that their biggest challenge was to ensure ‘that we do not end up trading analogue dollars for digital pennies’. He meant that audiences were moving online faster than advertisers, thus leaving media companies short-changed. Now, near the end of the year, the situation looks even worse, as the recession threatens to turn even the analogue dollars into pennies.”

The Economist points out that online traffic is moving towards sites where advertising has so far proved ineffective - such as user-generated content havens like YouTube and social networking sites such as MySpace and Facebook - “and is therefore cheap. This, says Mary Meeker (an Internet analyst at Morgan Stanley), presents an opportunity for innovation and arbitrage by clever marketing managers as they cut their conventional ad budgets. It may also provide a glimmer of hope for the advertising industry as it enters recession.”


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