Online advertising trends, barometer of economic health?

September 25, 2006

Lots of talk lately about a downturn in online advertising being on the cards. Mostly this has been started by Yahoo’s admission of weakness in it’s auto and financial display advertising income and the subsequent drop in it’s shareprice. This has lead to more speculation that changes in buying patterns could signal a slowdown. Today even the FT has a story about weakness in the US online advertising market.

I wonder if this really is a slowdown or whether it’s a sign of the online market maturing and relying less on expensive, low conversion rate display banners and moving into more intelligent ad types.

The growth of behavioural advertising is one area that shows no sign of letting up and with better conversions and ROI it seems ripe for growth.

Search marketing is another area that seems to go from strength to strength. While still in it’s infancy for some large corporations, many smaller companies are running their business on this form of advertising. Throw the upsurge in classified advertising into the mix and it all seems rosy. Or is it?

I guess the thing is that banners still command the largest share of revenue for agencies and a lot of the measurement for online ad activity comes from agency revenues rather than actual spend. Could it be that more advertisers are branching out and using multiple agencies and as such the media buyers and planners are not doing as well from online as they once were? This would seem reasonable given the news that ‘old media’ are driving online ad spend (seeing as old media tend to use buyers the most).

Of course this could all be expected coming mainly from the US market at this time when housing and other economic indicators are suggesting a lull. Perhaps online advertising is showing the same lull, it makes sense for buyers to pull back when times are looking harder ahead. It would be interesting to see an index of online advertising spend against other indicators such as housing, currency trends, oil prices etc to see if there is any correlation historically (and going forwards).

Whatever happens, if there is a dip it won’t be unhealthy for the market as it could well be time for a shake out and a few of the less healthy networks and agencies to fail anyway. There will always be plenty of people coming up with new and exciting ways for customers to get their messages to consumers online!

The IAB suggests all is rosy in the house of online ads so maybe Yahoo has just missed a trick this year…


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