Economic Hits: Internet May Revitalize Net Ads, Content

Not even the Internet will be an absolute safe haven for advertisers in the economic downturn. But that might just be up to Madison Avenue to decide.

This is the first major stretch of economic volatility in which the Internet is providing an alternative ad platform rivaling the potency of more traditional television and print. Any smart advertiser will continue to leverage brand recognition with television's broad audience, while nurturing individual loyalties and interactive transactions with online users. How the dollars are divvied up will be affected by many complex factors.

Although new and traditional media are slugging it out over tighter ad spend, the continued shift of dollars from television and print to the Internet is helping to maintain new media momentum. "Internet ad spending could still increase at a healthy rate of 11%, even in the face of an overall ad downturn. That's due to the powerful effect of the adoption curve of advertisers switching their budgets online," according to Bernstein Research analyst Jeffrey Lindsay. Even as the advertising sector overall grows at only 5% (or collapses to a flat line in the case of a severe economic downturn), online advertising can continue to grow at rates better than 25%.



As an ad platform, the Internet is just mature enough--and still new enough--to reflect broader market risks and rewards even in these tumultuous times. Not all Internet players will be winners, but they all will feel the economic pinch--just as in traditional media. Yahoo and AOL will be hurt by having ad models rooted in traditional display units with CPMs, and sold to brand marketers more likely to scale back in tough economic times. Paid search advertisers seeking direct sales to target consumers are more likely to maintain or even increase their spending with Google and newer social networks.

This was evident in third-quarter year-for-year revenue growth of 62% at Google, 135% at MySpace and 200% at Facebook, compared with 16% at Yahoo, 10% at AOL and 25% for U.S. online advertising overall. It ia the shape of things to come.

The 2001 economic downturn and its impact on Internet spending is no comparison. Then, the Internet was a novelty that represented 3.3% of U.S. advertising expenditures and 1.8% of overseas advertising expenditures. It consisted mostly of banner ads sold by sales teams as TV-modeled CPMs. Today, the Internet is mainstream, accounting for nearly 8% of the total domestic ad spend and nearly 9% overseas. Global revenues from outside the country now comprise nearly half of Google's total revenue and 32% of Yahoo's total revenue.

So, it is more instructive to lay present ad trends against a backdrop of diverse forces that will have unique and serious consequences. For instance, some economists predict a significant restraint on lending, resulting from what Citibank estimates will be $400 billion in losses from subprime mortgages and other sketchy loans. Retailers fear tight spending this holiday by debt-heavy consumers, the value of whose homes and credit options are falling. Advertisers are straining to show returns on their marketing investments within the context of their companies' own strained budgets.

Their need to reach target consumers is further complicated by the changing metrics governing both old and new media platforms and ad pricing. And that's compounded by the growing dearth of original programming from the broadcast networks as a result of the writers' strike.

While the overall weakness and tumult in traditional advertising will benefit online advertising, not all of the beneficiaries will be pure online players. In fact, a prolonged writers' strike, coupled by a protected economic downturn, could prompt traditional media players (broadcast nets, advertisers) to create new interactive space. Just as the reality television genre was born out of the 1988 writers' strike, and is sustaining the broadcast networks' on-air competitiveness this time, other creative forms of content and marketing will be born out of this current financial squeeze. There already is an underground of vital and interesting creativity online just waiting to be tapped.

With 75% of its revenues dependent on advertising and its season-to-date ratings down nearly 10%, CBS should be scouting online content and advertising alternatives with a vengeance. The same is true for Yahoo and AOL. There would be no faster antidote to page view losses and rising social network rivals than to tag online advertising to a new form of personalized content that could counter or capitalize on turbulent economics and the writers' strike. Didn't "Lonely Girl" set the stage for the two-minute online exploits of an embattled Super Mom, complete with downloadable coupons or codes for discounted groceries and lattes?

Advertisers could begin reevaluating their options by considering the fundamental differences between so-called old and new media. On television, advertisers are buying into content that promises (but cannot be certain) to deliver a demographic viewer. Online, advertisers are buying click-accountable users identified by preferences that translate into marketing targets. The value of those media connections should be more intensely scrutinized by Madison Avenue as economics worsen and as marketers realize they are not getting what they are paying for virtually anywhere on the media spectrum. As a result, advertisers may see things differently or catch something they have missed before.

Maybe they launch some low-cost, trial-run specialized content sites that offer target users specialized information and entertainment. After all, isn't that what Martha Stewart Omnimedia's online network of Web sites is all about? Maybe some bold marketers sponsor a broadcast network's streaming video talent show a la "American Idol" or short-subject showcase in an online search for non-union talent whose appeal could carry over into prime time.

Both approaches would represent a value-added marketing appeal to consumers who, in tough economic times, become more serious about goods and services. And it offers a new business model for grassroots creativity with commercial backbone.

After all, the conventional business models have not worked all that well on television or on the Internet. Necessity just might be the mother of invention.

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