In May, 2006 I asked whether the “next recession” would drive online ads:
Assume we go into recession in the next couple years, my thesis here is that event will potentially accelerate the adoption of online marketing because of its relatively low cost compared with traditional media, its “accountability” and its perceived efficiency . . .
Thus when the next recession hits, companies may shift more dollars out of higher-priced media to the Internet, unless of course prices have reached comparable levels online. Even then the perceived efficiency and measurability of online wins the contest.
Well the recession is here and the results are (so far) complicated in terms of whether businesses are abandoning traditional media for online. While there’s a general need to justify ad spending and a bias toward measurement, that’s not automatically translating into a shift in spending at the national or local level into digital platforms.
This Kate Kaye article from ClickZ discusses bullish predictions from Borrell and Kelsey on how SMBs and the local segment in general will respond and fare in this economy:
As analyst firms lower their predictions for Web ad revenues this year in the face of the financial market fiasco, local online ad spending might come in higher than originally anticipated by year’s end.
Spending on local search, Web sites, e-mail, and video ads will lead the way. And, as predictions for display ads are dire, signs indicate local display advertising — though slowing — has some future ahead of it.
In addition, specifically in the home improvement segment Kelsey is making bullish forecasts about the shift in ad spending among contractors and related categories to online. In a historical sense, of course, this is accurate. There is a shift going on and newspapers and yellow pages are witnessing it to varying degrees.
You all know the terrible saga of the newspaper industry. Now yellow pages are seeing ad sales declines (partly the economy, partly structural shifting). For example, RHD reported ad sales were down 8% in its most recent earnings report. And Idearc just reported today that while Internet sales were up almost 9% for the quarter, print sales were off just over 10% for the year to date:
Source: Idearc (10/30/08)
The reality “on the ground,” with SMBs and their ad spending has turned out to be more complex than many of the facile statements (including mine above) about shifting of ad dollars online may suggest. (In surveys businesses often say they intend to shift budget, but often this is more aspirational than turns out to be the case.) There’s no 1:1, direct transfer of funds going on. In many cases money being withdrawn from traditional media is not being transferred into online channels. For one thing online is typically cheaper and so some of it “evaporates,” for another SMBs (as well as brands) may just be cutting back.
As evidence of the latter inclination, see this set of data from a recent AMEX SMB survey:
Source: American Express (10/08)
While there’s a clear, abstract logic (as I suggested above) to the transfer of ad dollars online — and it is gradually happening — there’s also much greater complexity in practice. Some of the search marketing products being sold to SMBs have huge churn (as we’ve discussed here before), sending these advertisers into a kind of purgatory – they can’t go back exclusively to traditional media and they’re not sure how to proceed online.
On the question of spending on websites . . . Clearly everyone will eventually have a website or comparable Web presence in the not-to-distant future; it’s now just a basic cost of doing business:
Source: Opus Research/AllBusiness.com (8/08), n=908 small businesses
(I think the “yes” number above may be a bit high to be accurately extrapolated to the entire population of US SMBs, but more SMBs clearly have sites today.)
The bottom line is this: whether at a national or local level many marketers are just freezing what they’re doing and not taking chances right now on anything new or different. Witness Chrysler CMO Deborah Meyer’s quote in the WSJ a couple of weeks ago (“Marketers Cut Back on Digital Media,” 10/15/08″):
“We won’t experiment in a lot of things that are fun to have. All of our dollars have to go to hitting in-market shoppers with the appropriate media
While it’s rational to do more efficient marketing — and marketing in general — during a recession, everyone isn’t rational. SMBs and brands are trying to cut back and cut costs, but that doesn’t necessarily mean they’re actively embracing online marketing right now.
October 31, 2008 at 3:06 pm |
Great post. “Spending on local search, Web sites, e-mail, and video ads will lead the way.” — certainly hope so! About the newspaper industry… there is no reason they should be left behind. We’re seeing many papers have great success selling search and online advertising. They have a great advantage: trusted local brands, valuable local content and reps that know seasonality/short run advertising. They just need to embrace online!
October 31, 2008 at 3:18 pm |
They all should move online, but there are challenges as you know better than I.
October 31, 2008 at 7:31 pm |
Greg, as someone on the ground trying to move dollars from traditional media to pureplay, here’s what I see:
The logic is there that in a tough economy, people should go with a more targetable, quantifiable, cost-effective medium. The trouble is that, particularly at the SMB level, many advertising decisions aren’t made just from a place of reason and logic. Fear, inertia, uncertainty, confusion, tides, winds and mojo all play a factor.
So some certainly move online — and our most successful pitch goes something like this: “Take your worst performing media. Kill it and give us half and see if we don’t deliver better.”
That would seem to go with the research/projections you reference. But we also see people concerned enough about budgets that they’d just as soon cut and not replace. SMBs are operating from fear rather than greed these days and many seem resigned to reduced business in the next few months. Others see uncertain times as the wrong time to try something new, so they’d rather run reduced campaigns within their existing mix.
It’s a mixed bag in other words, and far too early to call any trends. But my gut and my recent sales calls tell me that online is going to be exceptionally well positioned when recovery comes — especially for those who have the patience to keep pushing the sales channels when the closes aren’t coming fast and furious. But in the meantime, a sinking tide is going to lower all boats.
October 31, 2008 at 7:52 pm |
That’s my sense too Mike. Thanks for providing the empirical reference points.
November 7, 2008 at 4:56 pm |
[...] After this article that presented a pretty upbeat view of the local market (see my response here), Borrell has lowered its forecast: For local interactive media, the big slowdown has begun a year [...]