Every few weeks, especially in the bout of more poor general economic news, an article comes out with even more dire news for the online advertising ecosystem, always taking the same shape. So and so has trimmed their ad forecast from y to z. Take this week’s example. "Jupiter predicts online advertising to grow 18.3% to $23.5 billion this year. That rate will slow to 14.8% in 2009 for a total of $27 billion. Jupiter in June had estimated growth of 19.6% and 16.1% for 2008 and 2009, respectively." Reading these is like death by 1000 paper cuts. It’s like the stock market going down day after day. After a while, all you see is the drops. You quickly lose site of the major positive, which is very true for the online advertising space, that everyone expects it to actually grow. The same cannot be said for overall ad spending. A recent article in the WSJ states, "For the advertising and media industries, the worst is yet to come, according to some of Madison Avenue’s most closely watched forecasts." Both of the major forecasters call for a decline but they differ on the severity of the decline. ZenithOptimedia, part of Publicis Groupe, expects U.S. ad spending to drop 6.2% in 2009 to $161.8 billion. While rival mega ad holding company WPP’s agency GroupM sees a decline of 3% to $157 billion. The latter disagrees with Jupiter for the online component suggesting that ad spending will rise 16% this year (compared to their 18.3%) and grow only 5% in 2009 (compared to a robust 14.8% projection from Jupiter).
Making sense of the numbers
If the online ad space will grow, and reiterated in every article are statements like "shift to digital," why does it still feel so negative? Part is the constant revisions mentioned which make the growth feel as though we aren’t actually growing. The other part is related to that – the overall feeling of slowing growth is a lot like riding a roller coaster. After hitting bottom, momentum takes you well into the climb, but as you near the top you start to slow, and that slowing causes a feeling on anxiety and anticipation, which in the case of the roller coaster has positive connotations, because the fall to the bottom is assured of another rise. Here, while we might have growth, we have slowing growth combined with both an economic recession and overall ad market spending pull back. The two combine to give the impression that online ad spending, while predicted to grow, might not really be growing but could simply be the last hold out, sure to decline just as the rest of the economy has and will. The performance of more than a few companies in the space doesn’t help either. The untold story of this ad story is that a 5% or even 10% overall industry growth doesn’t mean everyone will grow. Instead, growth or lack of growth is more feast or famine than in previous years, with more companies than we might expect experiencing some taste of the famine.
Performance marketing and agency spend
The key distinction between performance marketing and the traditional money earned from agencies stems from variable versus fixed payouts. By and large the performance world, by definition, earns its dollars through action, and the companies that fit well into this mold have scalable budgets. A classic example is mobile subscription services. While not completely unlimited, a traffic source could go from a few actions to earning more than a million dollars a month without worry of being slowed down. Some of the newer campaigns without the benefit of a long history to gauge performance, will often have budgets, especially high dollar lead campaigns that rely on a longer close cycle, but even then those traffic providers with promise could generally ramp up. The same does not hold for agency spends. The agency world has more in common with government spending than it does the online world. They have negotiated budgets, huge budgets, that they must decide where to go months in advance. And like the world of government spending, the media buyers for agencies are generally underpaid, under-appreciated internally but bombarded by the outside world looking for their dollars. Trapped in the world of being overworked but yielding a lot of power, it doesn’t make for the healthiest life or the most transparent world. Their dollars keep publishers, big public company publishers, in business, and when times get tough, it makes it that much harder for smaller publisher to capture the attention of the buyer and budget.
Performance marketing not immune but a different animal
Those working for certain companies in the performance space know first hand that performance companies are not immune from the downturn, they just react differently. Instead of budgets being cut, CPA’s are lowered or the overall economy means that certain ads no longer perform as well as they once did, the two often coming together when lead buyers go away. Those in the performance space don’t have to compete with budgets so much as they have to figure out what works and mobilize the troops. Debt campaigns strong, then go find the debt advertisers and the publishers that do well. Subprime becoming tougher to monetize, then figure out what still does well instead of relying on the status quo. Those who adapt will do well; those who have a more rigid structure will find it tougher to thrive even though they are in the performance space. What makes 2009 different from the past several years will be the inconsistency of performance campaigns. There were some unexpected winners in 2008 from mobile subscription, diet / health, and insurance, but not all will necessarily do as well in 2009. The winners of 2009 will cycle in and out of success much more quickly than the long lasting mortgage and education ads of a few years back. Feast or famine will impact the performance marketing space, but the real reason that performance marketing will feel less of the overall fluctuation, comes from our size. We’re simply not that big. Our biggest advertiser spends 1/10 that of the largest brand advertiser if not less. And, our biggest advertisers are really a mix of like advertisers, interchangeable and ultimately replaceable. As soon as we find a star, others wanting a piece of their action come up. This plotting is our fallibility but our greatest strength during rough times.
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