Yesterday, we hosted the popular San Francisco Lunch 2.0 series at our YieldBuild headquarters. Attendees got to meet and share ideas with each other, and network in the online advertising space. Good times! More pictures available at Flickr.

In the interest of sharing as much data–and, looking ahead, projections–on the state of the online advertising market with our readers as possible, here are two differing viewpoints, and some historical data that might shed some light on how a recovery would look.

In the optimist camp, we have Geoff Ramsey, CEO & founder of eMarketer, who says that online ad spend will continue to enjoy double-digit growth through 2009. Relying on data from the first half of the year, showing 15.2% growth according to the IAB, Ramsey maintains that the most recent downturn in financial markets will do little to disturb this trend. Several analysts quoted were bearish on online advertising, but several continued to contend that performance-based online advertising (contextual) would be one of the “safe harbors” that would avoid cuts as the recession trims corporate budgets. Ramsey gives 7 reasons why online advertising will weather the downturn better than other advertising options:

1. greater measurability of response
2. more granular targeting
3. higher engagement with consumer
4. increasing time of Internet usage at the expense of more traditional media
5. deeper interactivity with consumers
6. following online conversations gives marketers insights into consumer behavior, desires, feelings, etc.
7. access to consumers at all stages of the buying cycle

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With a more pessimistic view, Om Malik of GigaOm, points to the implosion of ad networks as evidence of a weakening of the online advertising market. Clients are squeezing their ad agencies, agencies are squeezing their networks, driving margins down and forcing smaller networks out of the market. While participating in ad exchanges can help networks with boosting their volume, the relationships networks have with agencies and clients, and their ability to maintain their relationship through tighter margins and technologically-sophisticated delivery options, will separate the wheat from the chaff.

Finally, it might be useful to take a look at an analogous period in recent history, namely the demise of Web 1.0 and the brunt borne by ad revenues then. That said, taking a look back assumes that we are indeed headed for an advertising downturn and instead suggests its duration and time before growth returns:

Keep in mind a few things before applying yesterday’s lessons to today’s:

• Web 1.0 was more e-commerce- and subscription-dependent than advertising-dependent
• the current macroeconomic meltdown might be larger than that of 2001
• the online advertising market is far more complex nowadays, with a wide proliferation of advertising formats, technologies, and revenue models that simply didn’t exist during Web 1.0, in which CPM display ads almost completely dominated
• Web 1.0 was pre-Google; search has revolutionized internet advertising, spawning contextual advertising
• people spend far more time online than they did 7 years ago

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Although we all hope for the best, it’s always best to prepare for the worst and plan accordingly. A changed online advertising landscape might provide the keys to staving off the downturn the first go-around—the chart above demonstrates that it took almost three years for the online advertising market to recover, a painful reminder of the changing tide of fortunes in this space.

YieldBuild’s VP of Marketing, Ren Chin, was selected to take part in ZDNet’s At the Whiteboard series, and recently shared his thoughts on online ad strategies. Have a look:

Paul Edmondson, YieldBuild CEO, was honored to write today’s Thought Leadership piece on DM2 Daily, the digital media and marketing newsletter. Here’s an excerpt, plus link for the full text.

The current credit crunch is being felt by just about everyone, and online publishers are no exception. Whether it’s a matter of minimizing burn rate, or making the most out of inventory, publishers are gearing for lean times in which only the savviest and best-performing are expected to do well. When ad spending contracts, like it did in 2000, the dollars that are available to web publishers will be more heavily weighted to performance type ads (in fact, according to a recent eMarketer study, this move is already happening). How does a Web publisher respond?

One thing many publishers don’t realize is that their choices can have a major impact on their campaigns’ performance. Recent years have seen a proliferation of ad networks competing with Google, and that often command higher payouts for their verticals. At the same time, ad networks have created a number of new ad formats, styles and technologies. The only problem has been: how does a publisher choose from among an increasingly complex set of network and format choices, especially when making the right choices can make a substantial difference in revenue performance?

As the problem space grows, there’s a growing need for a technological solution, one that can accommodate the variables that matter. Such a solution should also be able to respond to changes in traffic patterns, including coping with ad blindness (the likelihood of repeat visitors to ignore ads). It should additionally be able to respond to changes in ad formats as they become available, adding them to the optimization mix…

(Rest of article at DM2 Daily)

Wanna meet Cameron, star of “Sales Call with Cam Edmondson” while learning more about YieldBuild? Come to our Lunch 2.0 Event next Thursday!

Henry Blodget at Silicon Valley Insider threw some cold water on display ad market projections, contending that we can expect it to contract by 10-20% next year. He points to a few pieces of evidence in an IAB/PricewaterhouseCoopers report (full PDF), that, against the dismal economic backdrop, paint a gloomy picture:

• non-search advertising (display, but also classifieds, lead gen, and email) grew only 5% in Q2
• bucking a previously consistent trend, Q1 ‘08 online ad spend was lower than Q4 ‘07, and Q2 ‘08 was lower than the previous quarter
• both (primarily) display ad-supported Yahoo and Gawker Media have announced layoffs

Now Blodget was primarily taking aim at the proliferation of niche ad networks, which have primarily relied on display/CPM business models and a rosy economic outlook to justify their growth and online ad spend projections. He probably has a point. But, as the report’s figures relate to publishers with a more diversified ad revenue model (i.e. contextual and display, at the very least), the picture is a bit different:

• total online ad revenue grew 15.2% to $5.7 billion in the second quarter 2008, as compared to the same quarter last year
• the bulk of that growth was in search revenue, which grew 24% to $2.5 billion; search revenue now comprises 44% of online ad revenue (PwC’s definition of search revenue includes contextual advertising)
• classifieds and lead-gen were both down, and email flat, in Q2 08 vs Q2 07 – these were the other non-search categories lumped together with display in the 5% aggregate growth stat that Blodget reacted to

As  I had written earlier this month, as the economic situation worsens, advertisers are more sensitive to performance measurability, which is why contextual advertising hasn’t shown the relative weakness in growth that display, and especially other advertising formats have recently. But, as Henry Blodget repeats, none of these figures include data from the most recent economic shock, so all bets are off when it comes to guessing how low it can go.

If you have been an AdSense Publisher you have probably seen your earnings, revenue per click and click through rate  fluctuate.  In the life of an AdSense publisher, this is pretty normal.

We operate a site called HubPages that has content on a wide range of topics and significant traffic.  It’s the diversity of content that makes HubPages a good barometer for changes in AdSense. It’s pretty rare to see big fluctuations across the site, but it does happen.  When we see these, they tend to be holistic changes to AdSense that affect most publishers.

If you have a vertical site or smaller site there are a few things to look at when you see big swings in AdSense earnings.

1. Did you change your ad sizes and positioning?  The number one factor we see with influencing AdSense performance is placement.  Placement of a single ad can change the performance by upwards (and downwards) of 40%.
2.  Did you make any recent changes to your channels?  For example, did you remove a channel.  If you change channels, it’s possible to lose site targeted buys.  Site buys can increase earnings and if you lose them, so go your earnings.
3. Understanding seasonality.  For example, movie sites can see big swings during the high movie time like Summer and Christmas.  When new movies are launched, it’s possible to see a big increase while a campaign runs for the launch and a corresponding decrease when the campaign is over.
4. Traffic pattern changes. Sometimes a site’s traffic pattern can change quickly and have an enoumous impact on AdSense earnings.  If you see a big increase in natural search traffic, we’ve seen that have a positive affect on CTRs and CPMs.  If you get a spike in traffic from a source like Yahoo Buzz, then you’ll most likely see CTRs and CPMs decrease because this type of traffic is much less likely to click on ads.  To diagnose this, it’s helpful if you are using analytics on your site and can run reports that show the percentage changes.
5. Did the quality of your site change?  Sometimes a site will add a significant number of low quality pages.  One of the things we have seen is that as the quality of the content decrease, CTRs increase.  We speculate that this happens because the AdSense ad is offering more value to the user reletive to the content.  There is a threshold where AdSense content ads are so much better than the content on the page that users will click at a much higher rate.  However, AdSense is pretty good at adjusting revenue per click when this happens.  So, it’s likely that you’ll see revenues drop.  Also, increasing the quality of your sites content can have a big impact on revenue per click because more advertisers will want to be on your site and drive your advertising rates up.

If you like to measure everything as much as we do, then you may have hit your 200 AdSense Channel limit.  Good news!  AdSense has increased the limit by 300.  That’s right.  Publishers can now use 500 channels.

Here are a few ideas of things you may want to track. First categories.  If your site has entertainment, technololgy, health and other topics, use AdSense channels for each category.  This will help you figure out if you should explore other ad networks for portions of your content.  If that’s not enough, then you may want to setup channels for country codes.  Get an IP database and set channels up for each country.  Ever wonder how much you earn on clicks from India vs the UK?  Now you can do it.

Channels is one of my favorite features of AdSense.  I bet we use the next 300 in a few weeks.

Let us know what you track with channels.

I believe if you ask Google and Microsoft what the biggest challenge they have with their advertising businesses, they would say, finding a scalable way to monetize the fastest growing segment of the internet.  Social Media.

CPMs have been dismal at best in the social media space.  However, I believe over time that social networks will evolve.  The communication layer will monetize similarly to hotmail.  But, the apps will become the verticals.  Like Autos, Dating and Movies (Flixster).  Essentially, social networks will become the next generation portal.  The verticals will provide opportunities for premium CPMs to endemic advertisers.

There are many companies working to figure this out.  Today, Appsavvy raised $3.1 million to go after this vertical strategy.  Best of luck to them.

Web publishers, for whom online advertising is generally the bread and butter of their livelihood, have, naturally, been watching for changes in the online advertising market with anticipation. A look at economic projections has not been particularly reassuring, especially considering the generally-accepted idea that advertising is the line item to take a hit on a company’s budget when times are tough.

I wrote a month ago about a eMarketer study that showed search advertising growing at a faster clip than display advertising, which suggested that, in lean times, advertisers are more interested in measurable performance. A survey of 175 CMOs and marketing executives conducted by Epsilon shows that, indeed, among those who control the pursestrings, spending is generally being pared back. But, like the eMarketer study’s projections, those surveyed are increasingly moving their shrinking ad budgets online.

Here are the nuggets:

• 65% say their ad budgets are shrinking due to the poor economy
• 63% say their spend on interactive/digital advertising has risen (14% say it has decreased; 23% report it staying the same)
• 59% say spend on traditional media has dropped (13% increased; 29% stayed the same)
• when it comes to new media, 42% (the highest percentage) said that they plan on increasing spend in social media; blogs were #2 at 35%

True to the old adage, when the going gets tough, the tough get going, marketers are doing their best to squeeze as much performance possible out of every dollar spent. In the world of marketing and advertising, fortunately, new media and advertising technology is giving advertisers some opportunities.