Slowing Economy Hits Online Advertising

NEW YORK The slowing economy is cutting into online ad growth -- although it is likely to take a greater toll on offline media, according to a new survey. William Blair & Co. surveyed 150 Chicago-area interactive marketing companies to gauge the health of the medium. While it discovered a positive outlook, the investment bank found the gloomy outlook for the economy slowing growth. Two-thirds of respondents said economic turbulence is affecting spending. Respondents indicated an expectation Internet advertising would grow slightly more than 16 percent in the next year. In its previous surveys, William Blair tracked 19 percent growth expectations. The areas forecast to thrive: paid search and direct response ads that can be tied directly to ROI. "Online's healthy, but the economy is definitely having an impact," said Sean Riegsecker, CEO of Centro, a Chicago ad service for newspaper sites, in a conference call to discuss the findings. "In a weak economy, people are going to move more towards direct response. We're seeing brand advertising take a much bigger hit this year." The findings come as ad forecasters revise their projections for the sector because of the slowed economy. Magna Global svp Bob Coen now expects 12 percent growth in online display advertising, a sharp correction from the 16 percent bump he forecast last December. Dave Marsey, group media director at Digitas, said: "It seems like advertisers are holding back until they see what's going to happen over the next few months. All boats seem to rise and fall with the tide." One effect of the rocky economic climate: Ad price inflation is slowing. While last year's respondents pegged price increases at 7.3 percent, this year's prices are up 3.2 percent. William Blair attributes this to the vast amounts of inventory now available thanks to the popularity of social networks driving down prices for remnant inventory. The bank expects CPMs will continue to decline at portals and vertical sites. "It's holding steady," said Marsey. Absent of the economy, it would have been higher. Google's current run of success in Internet advertising, at the expense of rivals Microsoft and Yahoo!, is expected to continue, according to a new survey of interactive marketers. William Blair found 61 percent of respondents identified Google as the Internet media company best positioned for the next two years. Facebook was the top choice for 11 percent of respondents. Yahoo! got nods from just 6 percent, down from being the top choice of 30 percent in the previous year's survey. William Blair sees a confluence of factors that are benefiting Google while hurting Yahoo!. Users are visiting more sites, making Google's search engine more important, yet conversely weakening Yahoo!'s lead as a portal. The growth of social networks is putting pressure of Yahoo!'s display ad business, too, driving down prices and taking away time spent on Yahoo!. What's more, the Internet remains the choice for direct marketing budgets rather than brands, the survey found. "You're not going to prove to a brand advertiser that I'll show you a click on an ad and it'll move budgets," said Gian Fulgoni, chairman of comScore, an Internet measurement service. Marketers identified behavioral targeting, mobile marketing and social networks as areas poised for growth over the next year. William Blair estimates social networks now account for 15 percent of overall time spent online, although their corresponding ad revenue is far lower at 4 percent.The percentage of respondents advertising on social networks rose from 41 percent in last year's survey to 62 percent this year. The key to increased spending identified by the survey: better targeting. William Blair believes social networks occupying as central a role in advertising as they have in consumer behavior will be a long slog.

Performance Marketing

Slowing Economy Hits Online Advertising

Brian Morrissey

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Brian Morrissey