The Economics of Online Advertising
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Written By Joshua Stylman | September 12, 2007 | Share This
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When I get a MarketWatch alert pointing out how volatile the market has been in a given day or read in the news that ad spending is in trouble, I think of a recent post in which Henry Blodget of the outstanding new blog Silicon Alley Insider (here’s their feed) addresses the flagging market’s effects on online advertising. He suggests, in response to this Reuters article:
Please do not hallucinate that this will somehow not affect online advertising. In most prior recessions, advertising spending on all media except small, emerging ones has declined. The Internet no longer qualifies as “small” and “emerging.” (And this status didn’t spare it last time). Online ad spending should do better than spending on traditional media, but if current trends continue, this won’t be saying much.
Of course, I understand that an economic downturn has a ripple effect through all aspects of the economy, and marketing dollars are generally going to get cut first. I do wonder, though, if within overall media budgets, marketers will have a harder time axing their online initiatives.
In the late ’90s, I often wondered how some marketers were able to pay the premiums that publishers and networks were commanding online. The answer always seemed to be that they were either testing new channels for the future or buying market share – and would figure out the economics of the business later. Of course, when the market turned, marketers didn’t have the numbers to justify their Internet budgets to their boards and investors, and those expenditures were cut.
Nowadays, as Henry rightfully points out, Internet advertising is no longer “small” and “emerging,” and so perhaps it is more susceptible to the chopping block. But I’d argue that not only isn’t Internet advertising no longer a novelty, it’s also so vastly different from traditional advertising and from its nascent form that it ought to be the very last line item to get cut from media budgets. That is, I think the promise and hype of the late ’90s has been fulfilled: Web marketing is immediate, quantifiable, and most important, wildly efficient. Large marketers and their agencies actually have staff to plan and execute campaigns, and web analytics systems are no longer held together with duct tape. Internet advertising provides a minutely measurable return, so when utilized correctly, it really pays for itself. There’s no medium other than the Internet that allows that level of accountability and relative transparency, and essentially takes the guesswork out of advertising. That ought to mean that while there’s still a ways to go, the web is no longer the great unknown to advertisers, and if the old adage in marketing is “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half,” I’d imagine that the known and unwasted component of marketing budgets - online advertising - will remain.
To clarify, I don’t claim to be an economist, nor am I suggesting that digital advertising is recession-proof. What I am wondering is if marketers might actually embrace the Internet as the last channel standing, if and when overall marketing budgets get cut because of macroeconomic trends. Maybe that’s just wishful thinking, but in any case, if this is a recession, it will be an interesting test both for Internet advertising and for marketers.
Topics: Advertising: Online |