Why online advertising is recession-proof

By July 15th, 2008

Economic SlumpAdvertising and marketing are often said to be the first things killed in a company’s budget when business begins to look bleak. Businesses seek to prop up profitability by squeezing spending on a line item that has typically provided a delayed, and often hazy, impact on revenue. Advertising agency heads are projecting dips in spending while the US weathers a recession (although other geographies are doing well and are enjoying healthy ad spend growth).

But not everyone is as bearish as Interpublic Group, and even a general retreat in spending could belie a different phenomenon altogether: a shakeup in the advertising mix, as a confluence of sophisticated online advertising delivery technology, growing online usage trends, and greater visibility into performance for advertisers, create a perfect storm for online advertising to leap ahead.

Andrew Chen wrote a great post showing where the silver lining to the currently darkening cloud lies. Specifically, he points to the continued move from offline to online, performance-based advertising and the rise of UGC and social networks that advertisers are beginning to become comfortable with.

Offline to Online Continues

Recent research group IDC figures underscore that online is not where content producers will feel the pain. Another survey by Outsell suggests a slowing-down of ad spending overall, but continued growth in online. Advertisers are simply following the traffic. Most of the recent buzz has been around social networks, although even search traffic continues to grow by double-digits year-on-year.

Technology eases advertiser fears, presents new opportunities

However, advertisers worried about unfettered online ad spending, without any sense of its impact on business and revenues, are showing continued interest in performance-based advertising models (CPS, CPL and CPC, in particular). This is balanced, though, by advances in advertising delivery technologies online, including high-quality and interactive video, and the growing dominance of social networks like Facebook and Bebo, that have put relatively sophisticated targeting and performance measuring capabilities in the hands of advertisers, and that police their sites for objectionable content. Marketers understand that they can’t abandon their brand during an economic downturn, and instead are looking to find ways to more deeply engage with users in a context they’re comfortable with.

2008 is already halfway behind us, but the US economy doesn’t show any immediate signs of improving. Fortunately, publishers who have thrown their weight behind online media are much less likely to feel it, since several trends will continue to work in their favor.

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This entry was posted on Tuesday, July 15th, 2008 at 12:20 pm and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Why online advertising is recession-proof”

  1. Philip Says:

    Excellent post, to add to it, there is still so much room for growth in the online advertising sphere… A recent IAB UK brand engagement report found a massive gap between a retail company’s avg spend online (2.5% of advertising budget), and the perceived brand engagement at 40%… One does have to question the exactness of figures like this, but I do believe the value that advertisers get online is still a long way above the investment that the money handlers are willing to shell out.


  2. Jason Menayan Says:

    Thank you, Philip, for bringing this up. It’s true that brand-focused display advertising is most likely to take a hit if advertisers rein in their online spend, but it really shouldn’t. That tremendous gap you mention is exactly the reason they shouldn’t.

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