• by Mark Walsh  @markfwal, February 4, 2009

Online advertising this year will likely be flat or slow to single-digit growth as a result of the ailing economy, according to a panel of Internet ad executives gathered Monday at the OnMedia NYC conference.

In a wide-ranging discussion about the state of online advertising, Jeff Lanctot, chief strategy officer for Razorfish, offered an especially bleak assessment of the 2009 online ad market--saying flat revenues "would probably be a best-case scenario."

Not only are marketers cutting budgets, but turning to lower or no-cost options such as search engine optimization and marketing efforts within social media. "And people are trying not to pay for that strategy. "So here's a couple of dynamics going on that I think are going to cause a lot of pullback," said Lanctot.

David Moore, chairman and founder of 24/7 Real Media, estimated that Web advertising would be flat to growing only about 7%, while Magna Global Senior Vice President Brian Wieser noted the corrosive effect of declining CPMs on ad networks. In the fourth quarter, average CPMs on display ads sold through ad networks have were cut nearly in half to 26 cents compared to a year ago, according to data from PubMatic last month.

Frank Addante, founder and CEO of ad technology firm the Rubicon Project, downplayed the detriment of falling CPM prices, arguing that total dollars spent is what matters most. Because of increasing ad inventory "CPMs should decrease," he said. "But as long as total dollars increase, we're good. ROI should increase, which would mean people spend more money over time."

But Lanctot countered that the increasingly diffuse spread of ad dollars online makes it more difficult for publishers to thrive. "That's where the problem lies," he said. Addante suggested that Rubicon's ad management platform that allows publishers to serve and track ads across multiple networks helps them better manage advertising fragmentation online.

With an increased focus on direct-response advertising due to the economic downturn, Moore said he expects more brand advertisers to move toward transactional options such as pay-per-click or pay-per-action ads. But he emphasized that half the value of such ads is in branding, apart from any click-throughs.

Wieser maintained, however, that the Web is still best suited to advertisers targeting narrow consumer categories rather than the broad audiences that large brand marketers tend to favor. While companies talk a lot about increasing spending online, he said they know "if they cut mass marketing budgets, they lose share." For brand marketers, Web advertising is at least partly a matter of "doing what they need to be seen doing."

Lanctot pointed out that Coca-Cola, the quintessential big brand marketer, is spending increased amounts online as the Web "becomes a more important part of their marketing strategy."

Moore, taking issue with the idea that the Internet isn't a brand advertising medium, challenged Wieser to name a single brand that wouldn't benefit from being online. "The best deal you can find today is on the Web," he said.

When it came to the controversial topic of behavioral targeting, the panelists mostly agreed it still faced hurdles before gaining wider acceptance. Wieser suggested behavioral targeting was in need of "rebranding" because the term is synonymous with the collection of individuals' information and related privacy issues.

Even digital advertising champion Moore was ambivalent about behavioral targeting. "I agree it's overrated. The fact of the matter is--it works sometimes and sometimes it doesn't," he said. "We're going to have thousands of ways of filtering ads to get the right audience at the right time. Behavioral targeting is just one among many."