• by Mark Walsh  @markfwal, November 10, 2008

With ad budgets coming under growing pressure from a contracting economy, we asked Christopher Vollmer, who leads Booz & Company's North American media and entertainment practice, for his views on how the downturn will impact the digital media landscape. Vollmer is the author of "Always On: Advertising, Marketing, and Media in an Era of Consumer Control," released earlier this year.

Online Media Daily: Given current economic conditions, how do you see online advertising shaping up next year?

Vollmer: For marketers, the focus for the fourth quarter and 2009 will be on advertising that works. Marketers are looking for advertising environments that are targeted, accountable and interactive--all of those dimensions continue to benefit online.

Furthermore, most major marketers are still ramping up their online efforts and online still represents a comparatively small percentage of their overall media mix. Sectoral challenges in big spending categories such as auto, financial services and retail may result in slower growth in overall online spending, but online's share of total ad spend should still increase in 2009.

Highly measurable online advertising that is tied directly to lead generation and/or sales, such as search ads, in particular should experience continued growth.

Online Media Daily: Will emerging media categories such as social media and mobile be hard-hit with reduced spending?

Vollmer: Any medium that is relatively "new" to a marketer's budget will have to fight harder for an ongoing place in today's media mix.

In tough economic times, marketers want to have both real measurement and greater certainty over the ad dollars they are spending. This reality puts more pressure on the more experimental efforts in areas such as social networks, mobile and video games.

Those marketers that are focused on the youth demographic are perhaps a notable and important exception. Some reports suggest Generation Y is spending 30 percent more time on the Internet than they are on TV. It is therefore highly doubtful that innovative advertisers such as Unilever and Nike will reduce their spending on these elements at all--in fact, they may even increase their spending as they build confidence and see more results.

Finally, there is a lot of interest from marketers in how to use media to influence decisions close to the point of sale. This should benefit both in-store and place-based media owners as marketers use more of these media to influence and connect with consumers as part of their expanding shopper marketing programs.

Online Media Daily: What do you think the impact will be on ad networks?

Vollmer: Online ad networks as a category have clearly over-expanded, and as industry growth slows, it can be expected that many will fold or be consolidated--especially those that are dependent upon sectors such as auto, financial and telecommunications.

The key problem is that too many of the advertising networks offer too little additional value in the form of campaign optimization or audience targeting.

In this environment, the ad networks that survive will be those that are truly more vertically focused in audience, editorial and branding and have the targeting and optimization capabilities that can support more of a premium positioning.

Ad exchanges in general should also benefit from recent developments. Media owners and publishers will be looking for more efficient and low-cost channels (i.e., non-people-based channels) to sell portions of their advertising inventory. Marketers also are looking for more transparency and efficiency in the pricing of advertising, and many will find the auction-model therefore increasingly appealing over time.

Online Media Daily: What are you hearing from marketer clients in relation to the downturn, and how are you advising them?

Vollmer: Marketers are prioritizing performance/accountability and relevance in their advertising now--no question.

Our perspective is that many marketers will use the period of the current economic downturn to make significant changes to their media mix. They should also in parallel use this period to further strengthen their operational marketing capabilities in the following areas: integrated marketing, metrics, consumer insights and advertising innovation.

In the most negatively impacted sectors such as automotive, companies are being compelled to actively challenge the most traditional assumptions about their advertising spending. Many companies will as a result push harder and faster to reorient their media mix around performance, relevance and interactivity.

To get there effectively, many marketers will need to update and upgrade their own marketing organizations (e.g., new skills, new roles, new processes) as well as how they manage relationships with their agencies and media partners. For many, this will mean experimenting with new business models for working with agencies as well as media partners.

Online Media Daily: What is typically the biggest barrier for brand marketers to increasing digital budgets?

Vollmer: Booz & Company's recent Marketing & Media Ecosystem Study with the ANA, IAB, and 4As highlighted that only about 25% of all marketers considered themselves sufficiently digitally savvy to capitalize on the opportunities in online advertising.

Our study cited the most significant barriers to additional online spending as: 1. Continued uncertainty around the efficacy of online metrics and their comparability with those that marketers employ for traditional media and 2. The need for more education on online media at the senior levels within marketers, especially within the C-suite, given the rapid pace of innovation in digital advertising.

Online Media Daily: Do you think Yahoo will ultimately end up being acquired by Microsoft?

Vollmer: The options available to Yahoo and its current leadership are now quite limited, given the collapse of the company's partnership discussions with Google.

Yahoo is now signaling quite strongly that it wants to get Microsoft back to the negotiation table. However, Yahoo will have to accept a much lower valuation than the previous $33 share, and it may also have to accept selling the company in piece parts, as Microsoft will most likely want to buy only the search business and perhaps the Yahoo ad networks and exchange related assets.

At this stage, much will depend on the transaction price, and Microsoft will not come back unless it is much lower.

This splitting of Yahoo could still perhaps lead to some kind of subsequent combination of the remaining Yahoo display business with another player equally in need of a deal to strengthen its positioning, such as AOL.

The current Yahoo stock price further reflects the market's belief that the current Yahoo management cannot turn the company around organically."