Research
A slightly less rosy outlook for online
By Diego Vasquez
Mar 19, 2008 - 1:02:31 AM

With fears of a recession growing, several respected forecasters already have cut their forecasts for this year, even after taking into consideration heavy political and Summer Olympic advertising, and this week eMarketer joins that roster, cutting its projections for 2008 online spending. It still expects healthy growth, projecting a 23 percent increase, to $25.8 billion, down from $27.5 billion. In trimming its 2008 outlook the internet research firm cites concerns over the U.S. economy but also the failure of social networks and other user-generated content sites to leverage their popularity into solid ad dollars. But even at the slower growth pace, the internet will far outpace ad spending in traditional media. Emarketer is pegging overall ad spending growth at 3.3 percent. David Hallerman, senior analyst at eMarketer, talks to Media Life about the disparity between web time and web dollars, the unfulfilled promise of Web 2.0, and why this is nothing like the dot.com collapse.

 
Why will online advertising be able to withstand the crunch of a possible recession better than other advertising media?
 
As ad budgets get cut, a lot of executives making decisions need to prove their spending, and the potential of a better measurement is a part of it.

Another part of it is that the dollars are just trying to catch up.

The numbers show that 29 percent of media time each week goes to internet, although only 10 percent of ad dollars will go online next year. That shows a mismatch between advertisers’ share of ad spend and what actually goes online.
 
Another thing that will help pricing is the greater presence of ad networks and exchanges. They help advertisers and their agencies do more targeted buys across multiple sites, and that’s still a growing area.

Portals are also part of the picture, the idea being that portals give a mass reach, and at the same time networks give advertisers implementation across multiple sites. The whole network concept is becoming more and more important. That's one key reason why all four major portals are building out their own ad networks.
 
All that said, our estimates are lower than what we had in October.

Various Web 2.0-style sites have had difficulty growing their ad revenues even in a booming economy. Another area that’s not really helping the internet, at least this year, is the national elections. Less than 1 percent of political ad spending is going online.
 

How important is online ad measuring in that equation?
 
It’s very important, and it’s not entirely reliable. It’s still being developed.

Traffic is one of those things, like circulation with magazines, a classic tool for pricing, and it’s better than other media, but it's still imperfect and could use improvement.
 
In the last full year we have numbers for, the 100 biggest advertisers in the U.S only put 3.3 percent of their total ad budgets online. Procter & Gamble, for example, put 1.1 percent of its budget into online.
 
If a company like Procter & Gamble goes from, say, 1 percent to 4 percent, that’s a lot of money.


We've heard of some media buyers turning to the web during the recent TV writers' strike. Could the web actually benefit from a slowdown in other advertising areas?
 
A little bit, but TV remains strong.

The shifts are more away from newspapers and radio than they are from TV, or even magazines. Magazines succeed because they’re very good verticals. So I think the strike had a little impact, but with TV back we won’t see much of a shift.

We don’t do our own numbers on TV, but ad spending was at only a few percentage [points] of growth and the internet is at about 22.7 percent, so clearly some money is coming from TV.
 

Are there certain segments of advertisers who will be more inclined to boost ad spending during this time?
 
Good question, but I don’t have a good answer.

Do you see any other ad segment holding up as well during a rough patch in the economy?
 
No, not any of the majors. And when it comes to online, paid search won’t grow as fast as it used to, but it will still get the lion’s share of the money.


Do you think we are in a recession? If so, do you think this one will be longer or shorter than the one during the dot.com bubble burst?
 
I’m not an economist, but one thing you can’t do is compare it to the dot.com meltdown in the early part of the decade.

I’ve talked about some of the Web 2.0-style sites going under, but it’s really not comparable in that way. There are plenty of profitable businesses on the web.
 

What differences and similarities do you see across online advertising in general now and during the last recession?
 
That’s the main one: there’re a lot of profitable businesses now.

And there’s mindshare. People now see the internet as a part of people’s daily lives. That wasn't so back then. That's true of people making the ad decisions as well.

Back then it wasn’t so much that the internet was ahead of its time, but there were a lot of over-valued businesses that just weren’t making money. There’s only a little bit of that now, like Facebook for example--not that Facebook’s about to disappear.