Commentary

Online Ad Bubble?

  • by , Featured Contributor, September 13, 2007
As one comes to expect, when things get hot in a market, a number of analysts and observers start to look for signs of a slowdown. It's quite natural and, I think, a good thing. Henry Blodget of Silicon Alley Insider has done one of the best jobs looking at trends in the market with an eye toward whether or not we might see a slowdown or online ad recession.

While I think that much of Blodget's analysis is correct, there are some deep dynamics at play in the general economy, with the traditional advertising business, and even with some parts of the online ad business that are showing signs of potential slowdowns. However, I don't think that we are -- by any means -- on the verge of an online ad recession. Quite the opposite; in fact, I think that we are on the verge of an explosive growth phase in online advertising. Why do I think that? Here are my reasons.

  • Results. The results that advertisers and marketers are achieving online are getting better by the day. We as an industry are not standing still, as other media are. The online ad market is too competitive for that. We are moving and innovating, and that movement is showing up in the performance we're delivering for our clients.

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  • Offline's loss is our gain. Advertiser spend on offline media in many sectors is flat or declining. This is not because advertising in general isn't working as well as it used to, but because many of the offline media channels are losing audience in a dramatic way, particularly to the Internet. Further, a significant amount of ad spend is also shifting to more measurable and accountable platforms, such as the Internet. Thus, we are taking both audience and ad share. Their loss is our gain.

  • Online attrition is a good thing. The online ad marketplace is fast-moving, dynamic and highly competitive. We are going to see a number of online ad companies slow down and/or go out of business. That is not a bad thing. It is a good thing. Certainly, the robust availability of venture capital means that many more online ad businesses are likely to be funded than will be successful and survive. This creates lots of competition and makes us all better. It is good for a growth market and helps us take share from other marketing and advertising channels.

  • Strong underlying fundamentals. I was in the market before, during and after the "dot-com bubble." Today is nothing like 1999 or 2000. This market is now being driven by companies that deliver real results for real marketers at real scale. There is virtually no comparison to the days when all of our ad campaigns were being purchased by dot-com companies that were taking all of their money, and basing all of their value, on non-revenue or non-profit-related metrics. Further, those companies that have been funded or purchased on non-dollar multiples, like MySpace and Facebook, are starting to show an ability to quickly grow strong revenue positions and promising long-term profit potential.

Is our market getting a bit hyped? Certainly. Does hype spell impending problems? Here I think we are on the verge of market growth that is likely to actually exceed the hype. Not everyone in online advertising is going to make the ride, but that's the way things work. What do you think?
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