Future of Online Advertising in Flux

Here we are, fully deluged by the holiday season. There are parties galore and everyone’s in good spirits. And you may think it’s safe to feel smug about the rosy future of the online advertising industry. TNS Media Intelligence, for example, recently reported that for the first nine months of 2007, Internet display advertising continued to lead the market, increasing 17.2 percent to $8.4 billion in ad expenditures. EMarketer predicts online ad spending will increase by 29 percent in 2008, and Borrell Associates forecasts a jump of 48 percent in local online advertising to $12.6 billion next year. But there’s always something to ruin the party.

In its release, TNS quoted its SVP of research, Jon Swallen, as saying:

The anemic growth rates in measured ad spending reflect a market that is under stress from cyclical business conditions and fundamental structural changes. Deepening concerns about lower corporate profits, a softening economy and reduced consumer spending have prompted marketers to be cautious with their advertising budgets. The ongoing shift of money towards untracked digital alternatives also contributes to the present slowdown in measured spending.

Way to ruin my end-of-year buzz, dude!

Not that I don’t want to heed the signs. I survived the dot-com bust days, so I’ll probably always be a more cautiously optimistic person. But I also tend to gauge the temperature of the online ad market by my peer-to-peer discussions and the amount and kind of inquiries our agency receives. According to some peers, we should anticipate our advertising clients to increase their online advertising budgets from 5 to 30 percent next year. That’s about in line with eMarketer’s 2008 forecast, and I’ll take that!

I’m also having the same types of first-time-buyer discussions that I had with advertisers back in 2003. This tells me that there are still plenty of companies just coming around to the idea of online advertising and marketing.

No, they haven’t been living under a rock, and, yes, most aren’t big-name consumer-brand products that you’d expect to already be doing online advertising. Plenty, however, are active advertisers in other media and are finally realizing that their audiences are shifting their media consumption habits to online.

These discussions sound like those I had back in 2005. Happily, I can say that even the greenest of online advertisers has progressed slightly, however. They’re asking better questions now. They come with more clearly defined campaign objectives (as opposed to “Uh, I just want to reach my audience through the Internet”), they understand the media a bit more than they did three years ago (although the varied options for electronic media can still overwhelm them), and most of them actually seem excited about the prospect of online advertising (as opposed to wincing at “testing the waters”).

Many first-time advertisers are represented by small to medium-sized advertising and interactive development agencies that have also woken up to the idea of pitching their clients on online advertising. When fielding one of these recent calls, I asked the fellow why he thought that was. “Our advertisers just seem to be more interested in online now and they have budget to spend,” he said.

Still challenging can be the size of that budget, particularly versus what they hope to get out of it. They want to do “a couple of portal buys” with a $10,000 budget that’s inclusive of agency fees. No dice.

Even clients with healthy budgets still often come in with skewed expectations. Clearly, as a sector we must continue to educate the market. Education plays an important role in our industry’s health, particularly if the nation rolls into a recession. More people are, after all, consuming more of their media electronically than ever before.

Going into this new year, I’ll once again buckle up, get ready for a potential rollercoaster ride, and keep on educating…which is what I hope I do well every other week for you, ClickZ readers.

My best wishes that we all may continue to prosper in 2008!