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Jason Menayan is the director of marketing at YieldBuild, the online ad optimization service. Prior to his role at YieldBuild, Jason served as marketing manager at HubPages, where he grew the publisher base to more than 30,000 and traffic to more than 20 million monthly page views. Jason also served as producer for QuinStreet's WorldWideLearn, where he doubled traffic within one year, and technical producer at CNET's Shopper.com.
Website - http://yieldbuild.com

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Bright Side of Online Ad Markets

Written on
Dec 11, 2008 
Author
Jason Menayan  |
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Bright Side of Online Ad Markets

google_polling_small.jpgADOTAS EXCLUSIVE — Analysts and pundits have reacted with alarm to the sudden flattening of the online ad market, and with good reason–online was touted to be both the yet-unfulfilled gem of all the major advertising media, and it’s been the primary source of revenue for social networks, user-generated content sites, and other Web 2.0 services.

Data and projections from the IAB, Morgan Stanley’s Mary Meeker, Jupiter Media, and eMarketer, among others, suggest that online advertising, having enjoyed reliably robust growth rates over the past 6 years, will see them shrink to zilch–optimistically–in 2009.

But behind the negligible overall growth figure lies two contrasting figures: continued growth in contextual/search advertising, and a slump in display. Looking at the previous online ad market slump, as well as the nature of today’s more complex market, provides indications on why this mixed picture stands, and when and how we can expect growth to resume.

Looking at the implosion of the online ad market in 2001, and its subsequent lengthy recovery is only partially instructive. The reality is that a number of factors make the state of today’s online advertising market different enough this time around to give credence to optimism. Search and contextual advertising exist now.

In contrast to the heady days at the turn of the millennium, the online ad market is much more complex today. Traffic patterns, strongly influenced by search, have changed, as has targeting sophistication. Contextual and search advertising is now a more than $10 billion business in the U.S. alone. Contextual- and behavioral-targeting technologies didn’t exist during Web 1.0; they are making more out of advertising dollars today.

Different revenue models exist. In contrast to the CPM model that predominated during Web 1.0, CPC and CPA are well-developed monetization forms that give both advertisers and publishers greater flexibility to price offers and inventory. Performance-based marketing tends to favor CPC and CPA, while branding and awareness lean towards CPM. The proliferation of choices allows superior risk mitigation and likelihood of achieving and measuring performance.

The move from offline to online continues unabated. While social networks and streaming video are the current most popular flavors, growth in users and time spent online continue. And while both social networks and video services face challenges in effectively monetizing their inventory, growing traffic tends to be the least of their worries. Eyeballs are increasingly viewing the world through Internet Explorer, Firefox, and Flash plugins.

Ad format technology has improved. No longer reliant on banners, advertisers and publishers alike have a wide variety of sizes, formats and engagement technologies at their disposal.

The fact that online advertising is sputtering overall belies two divergent phenomena: the continued, healthy growth of contextual/search advertising, and a slump in display advertising. The reason is not difficult to tease out: in economic downturns, marketers are under heightened scrutiny to demonstrate performance from their ad spend. Contextual/search advertising is typically priced as CPC or CPA, while display is CPM. When budgets are tight, advertising that leads to site visits or conversions are easier to justify than those that offer the nebulous and difficult to measure benefit of exposure.

Does this sound the death knell for display advertising? It’s hard to imagine a $6 billion business in the U.S. alone vaporizing into thin air, since it still does demonstrate substantial value to advertisers. It’s only when ad budgets are threatened with severe cuts that marketers forgo an immediate interest in investing in their brands. Besides, rich media ads, which combine the visual impact of display advertising with the engagement and conversion metrics of contextual ads, are growing in popularity, and they allow advertisers to measure visitor interaction with the ad creative and correlate it to brand awareness.

What is probable, however, is that the recent outgrowth of niche display networks will be stemmed; many will be eaten up by larger networks, others will be brushed into the deadpool. Those networks that offer greater value to advertisers and publishers through unique targeting and engagement technologies stand the best chance of weathering the current storm.

In terms of growth, I predict the short term will see contextual growth balancing display weakness, as the latter shakes out nonperforming players and advertisers retreat to what they can measure. Then, I believe we can expect the more powerful display networks to innovate and capture the lion’s share of display advertising dollars that, despite the downturn, are still seeking safe harbor in a medium that’s continuing to grow. When the economic slump is over, and ad budgets again expand, expect a boost to the display ad market that had cut its teeth during hard times.

– Express your opinion, comment below.





Reader Comments.

Companies seem to ignore the single largest online branding/advertising venue available: their own regular external emails. Why not use these emails to market the senders company?

You have a website.
You send emails.

Why not multiply your sales-staff by “wrapping” the regular email in an interactive letterhead?

No other marketing or advertising medium is as targeted as an email between people that know each other (as opposed to mass emails). These emails are always read and typically kept.

Posted by Rolv Heggenhougen | 12:27 pm on December 11, 2008.

@roly:

Interactive letterhead? huh?

“No other marketing or advertising medium is as targeted as an email between people that know each other”

That’s exactly WHY you don’t wrap them with crap as you suggested.

http://www.useit.com/alertbox/confirmation-email.html

Posted by todd g @ buysellads.com | 5:37 pm on December 11, 2008.

The fact that online marketing is flat lining is great news for our companies. If your competition isn’t advertising you should be!

Advertising isn’t going anywhere and if less and less people do it the clicks are just going to get cheaper. I don’t see any problems at all.

Posted by Acai Berry | 3:33 pm on December 16, 2008.

@acai berry… I love acai! I lived in Porto Alegre for a year as an exchange student back in 1999. Acai and havianas are my two favorite discoveries while living in brasil ;)

Posted by todd g @ buysellads.com | 4:49 pm on December 17, 2008.

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