Online Ads: Even the Evangelists Turning Bearish

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Sarah Lacy
TechCrunch.com
Wednesday, February 25, 2009; 1:53 PM

It wasn?t too many months ago that saying online advertising would decline in 2009 was enough to get you laughed at in the blogosphere, mocked on Twitter, and have Eric Schmidt roll his eyes and explain, again, why Google ads were such a better value than traditional media.

Flash forward to this week and the Interactive Advertising Bureau big wigs are predicting whole businesses dependent on online ads could go belly up, and researcher IDC has completely reversed its growth estimates. No longer will online ads grow 10% in 2009, says the firm. IDC now predicts a 5% drop in revenues in the first quarter that could get worse in the second. Fingers crossed for the second half of the year.

The trend is certainly already moving in that direction: Last year the market was growing at 18%. Last quarter it grew a sad .4%. That?s flirting dangerously close to the first quarter-over-quarter drop in online ad sales since the great dot com bust. Suddenly everyone?s bull scenario isn?t double-digit growth; it?s a year that doesn?t tip negative.

How?d everyone get the story so wrong? (Ok, not everyone. Stop waving your hand Henry Blodget, I see you.) Two big assumptions were at work here: One was that online advertising is more actionable and more measurable than advertising in the offline world. The other was this pie chart that Yahoo?s PR department used to love to trot out showing the discrepancy between the amount of time people spend online and the percentage of advertising spend that goes online. "At some point, that has to balance out, right? RIGHT?"

There?s enough truth in these assumptions to ensure that online advertising won?t have nearly as bad of a year as offline advertising. But in this market, that?s like saying a broken leg is better than an amputated one.

Plenty of attendees at this week's IAB conference pointed out that problems like reliable audience measurement are no closer to being solved than they were during the industry?s last identity crisis in 2001. Some people argue, it?s gotten worse. There was also plenty of worried chatter that desperate times would lead to desperate measures, causing advertisers to play fast and loose with user privacy in an attempt to make a sale.

I have a better idea: How about actually come up with innovative advertising products? Google-aside, I think the Web industry has gotten lazy when it comes to advertising innovation. There?s too much outsourcing to the ad networks and too much of an assumption by the portals and other large properties that gaudy eyeballs will be enough. That's old media thinking. It?s enough to get ads when times are good, but not necessarily to keep them when times get bad.

A lot of people criticize newspapers for just putting their stories online, the same way they?d dummy them up on the printed page, rather than really utilizing the two-way medium. I think you could argue the same about the way many sites think about display ads. Too often it seems a cat and mouse game where I?m chasing an ad around a page looking for the close button so I can read some content. Sure, maybe I look at your message more than I would in a banner. But it?s also annoyed me enough that I will never buy your product. In many cases, even a back-to-basics approach works better, as I wrote about in my BusinessWeek column today that highlights some of the shockingly high CPM rates that un-high-tech email newsletters are getting.

Like so many things in the recession, it?s ultimately a good sign that marketers are panicked. We might actually see some innovation here.


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