The good, the bad and the other: The future of advertising online
Early on in the troubles, there was some suggestion that internet advertising might buck the global credit crunch, with money flowing online from newspapers, television and radio. But this scenario is looking more and more unlikely.
Rather, "it is increasingly clear that internet advertising is also getting hit hard by the economic downturn," says Eric Pfanner in the International Herald Tribune. Spending is still rising, but growth has slowed sharply, to low double-digit percentages in major markets like the United States and Britain. And some kinds of internet advertising are faring considerably worse."
In the UK – the world's most advanced market for online advertising, garnering about 20 per cent of total ad spending – Enders Analysis expects online ad spending to rise by 18.5 per cent this year, says Pfanner. That doesn't sound half bad, except that it's less than half the growth rate of 2007, with most of the gain going to one category – contextual ads that are sold by Google and other search engines and shown alongside responses to users' queries.
Online display advertising, in particular, has taken a hit, with spending in the UK falling to $US497 million in the first six months of 2008, from $575 million a year earlier, according to Nielsen research.
And while old media are still losing market share to the internet, it's not happening as quickly as some had predicted, says Pfanner, possibly due to that old-fashioned notion that television and print are still the best bet for reaching the largest possible audience for the minimum amount of money.
This is bad news, says Pfanner; "particularly for start-up companies seeking to develop the internet as a mainstream, ad-funded medium like television. Their founders have dreamed up myriad business models based on tapping online display advertising to make money from blogging, social networking, music and video sharing and other Web 2.0 services."
It's also bad news for ad companies themselves. Online ad startups the likes of AdBrite, Heavy.com, Imeem, and Zillow, as well as web ad giants like Yahoo are being forced to cull their ad sales forces, says Nicholas Carlson on Silicon Alley Insider.
"A Razorfish executive told us last week that 'dozens and dozens' of ad networks will go bust in 2009. Soon, hundreds if not thousands of talented and experienced ad execs will be on the street or working for failing firms," he adds.
But for those looking for an upside, AdvertisingAge's Michael Learmonth found some glass-half-full advertising types willing to oblige. As paraphrased by Silicon Alley's Carlson, their theory goes something like this: "All the blood in the water means there will finally be an end to a talent shortage that has been hampering the online advertising industry for years." It will also mean an end to bloated salaries, more quality over quantity and a refreshing reshuffle of advertising's most talented.
And according to BusinessWeek's Rob Hof, there is also an alternative to despair for those companies who had been counting on online advertising to fund their ventures. Simply find revenue elsewhere.
The sale of virtual goods, for instance – that is, the selling of clothes, jewellery, and other accessories to dress up one's avatar or online character – is now a more than $1 billion business worldwide, says Hof.
"For years virtual goods have been the key business model on popular sites in Asia. Two-thirds of the $523 million in sales by China's Tencent social sites comes from virtual goods such as pets; only 13 per cent is from advertising."
And western social networking giants like Facebook are following suit, having quickly discovered that virtual goods are a much better fit than advertising, which tends to be "more distracting than alluring on sites where people are there to interact with one another," says Hof.
Then there are subscriptions, he says. "Once thought to be a losing proposition on the wide-open web," subscriptions have become a $2 billion-plus business, "with millions of people willing to pay monthly or annual fees to companies such as United Online's Classmates.com and family research service Ancestry.com."
Corporations, in particular, are proving to be willing to subscribe for a service they value, says Hof. Salesforce.com, for example, is expected to gross $1 billion for the year ending in January by selling online customer tracking and management services, starting at $9 a month per user.
Financial turmoil catches up with online advertising, Eric Pfanner, International Herald Tribune
Three reasons why the crash is good for online advertising, Nicholas Carlson, Silicon Alley Insider
Lucrative alternatives to online advertising, Robert D. Hof, BusinessWeek
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