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| Thursday, November 6, 2008 Don't Count Out The American Consumer By Dave Morgan The point Sir Martin made was that a number of times in the past, when things were tough in the U.S. economy and most prognosticators were calling for long and severe recessions or depressions, U.S. consumers and their massive buying power proved the gloom-sayers wrong, with consumers buying their way out of it through innovation and optimism and sheer will. I think this is a very important point to keep in mind today, as we ponder what the next year or two will bring for the ad market in general and the online ad market specifically. Yesterday, Mary Meeker of Morgan Stanley gave a presentation at the Web 2.0 Summit in which she spoke about the link between U.S. GDP growth and advertising spend. She projected that flat GDP growth next year would likely mean the overall ad market would decline by 4% -- and a decline in U.S. GDP by 2% would mean a 10% decline in overall ad spending. Wow! If the economy shrinks over the next year -- and I think that it will -- it appears that even a 2% decline could have very serious consequences for our industry. What would a 10% decline in overall ad spending mean for online? It's hard to say with any degree of certainty, but it will certainly have a major impact. Search will probably continue to grow, because it is so ROI-focused, and most advertisers are still early in their learning curve in using and still seeing positive rewards for incremental investments. The analysis is probably not the same for online display ads, though. If the overall ad market declines by 10%, I suspect that we will see online display ad spend decline by at least as large a number. While some advertisers clearly see very positive and provable ROI from their display ad investments, many do not yet. For many, display ad spend will be one of their easier cuts. They and their agencies don't have the history with their online media companies and sales reps that they do with their television colleagues (never count out the importance of personal history and relationships when times are tough). Not many folks will be fired because they didn't buy enough banners, as long as they buy some on the higher profile sites with well-known brands that everyone likes to be associated with -- good news for folks like NYTimes.com or Weather.com. Do I think that a 10% decline in online display ad spend is truly possible for next year? Yes - and I think it is very likely to be worse than that. I believe this decline is inevitable and ultimately will help the industry "shake out" a bit, causing companies to tighten up significantly, which isn't a bad thing. However, I also believe, like Sir Martin, that we should not count out the American consumer. While 2009 may be a tough year for many in this business -- and we need to be prepared for that -- it is quite possible that we will see a strong rebound in the middle of 2010, as consumers continue to embrace the Internet and as our companies drive their businesses through tough times with innovation and hard work, coming out stronger on the other side. What do you think? Post your response to the public Online SPIN blog. See what others are saying on the Online SPIN blog. Dave Morgan, founder of TACODA and Real Media, is Chairman of -- and a partner in -- The Tennis Company, which owns TENNIS.com, and TENNIS and SMASH Magazines. Online Spin for Thursday, November 6, 2008: | |
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