Online Ad Spending May Grow, But Not Evenly Across All Online Formats

The Economist cites eMarketer forecasts that put online ad growth in positive territory — at 8.9% for 2009 (though eMarketer has pulled back from its August estimate of 14.5% growth). Improvements in performance marketing platforms (such as paid search) and in rich-media creative formats for brand advertisers, it argues, will enable online media to steal share of the advertising mix, even as ad spending overall is expected to be down.

“All this makes spending on advertising much less speculative, so that it starts to be treated instead as a cost of sales. This is one reason why online advertising should suffer less than other sorts. This week eMarketer, a market-research firm, predicted that online-advertising spending in America, which makes up about half the global total, will increase by 8.9% in 2009, rather than the 14.5% it had forecast in August. The firm thinks search advertising will grow by 14.9% and rich-media ads by 7.5%, whereas display ads will grow by 6.6%. In short, online advertising will continue to expand in the recession–just not as quickly as previously expected.”

I agree with the premise. Online overall may grow, but certain parts of the online ecosystem — namely, standard banners that are targeted by demographic alone — will suffer as online ad dollars migrate toward the bottom of the media-spending pyramid (direct response and guaranteed performance programs) as well as toward to top (limited supply, high impact branding opportunities on premium sites, around premium video, etc). The ChasNote graphics department illustrates the trend below, with the good old days represented on the left; the next 18-24 months represented on the right.

Media Spending Pyramid, Before and After

  1. # Florent said: December 2nd, 2008 at 10:57 am

    100% agree with that. The only escape for branded publishers is “up the ladder” since they can’t offer search and, frankly, are not this efficient on direct response programs. So it means more expansive ad programs (increasing cost of sales and marketing) while 70% of the unsold inventory will be sold at depressed remnant rates (think 75cts max for the ones that are used to tap above the dollar).
    Great chart!

  2. # jackmayhofferr said: December 2nd, 2008 at 11:58 am

    Looks all formats will have positive growth and the difference is less than 3% between formats. Since this is a “forecast”, that >3% seems a reasonable margin of error, so the impact may be nil. I do agree that marketers will be looking for more accountability in all areas of marketing, esp. online.

    Also, not sure what the difference is between a DR banner and a “Standard” banner. Is a standard banner, one that is run with out targeting or regard to ROI?

  3. # Chas said: December 2nd, 2008 at 9:24 pm

    @jackmayhofferr, I bet that the variance between formats will be much greater than 3%. For example, paid search (which is dominated by Google) will be up by 25-35%, year over year. If banner ads sold by horizontal ad networks are lucky, they’ll be up 5-10%, which would mean growth at the bottom of my pyramid picture would be 3 to 7 times the growth in the middle.

    My category definitions are imperfect. But generally DR programs — paid search, text ads and banners available via certain ad networks — are purchased on cost-per-action basis such as cost-per-click (CPC). Standard banners are sold on a cost-per-thousand impressions (CPM) basis. By sponsorships and rich media, I’m referring to special placements adjacent to unique, limited supply, high quality content. A TV analogy: middle pyramid stuff is buying a certain number of :30s that run within any of the shows or dayparts on a particular network; top of the pyramid is buying the first commercial in the first commercial break during Monday Night Football — as well as sponsoring special programming during halftime.

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