More NewsAs Display Sank Deeper in ’08, Web Giants Pushed to Gain Ground

As Display Sank Deeper in '08, Web Giants Pushed to Gain Ground

2008 wasn't necessarily a breaking point for display, but it marked the beginning of a full-on showdown among big Web players aiming to own the shrinking display ad market.

Display advertising continued to lose ground this year. Indeed, it seemed like the only thing that was up was the number of depressing headlines about the state of display. Though 2008 wasn’t necessarily a breaking point for the original online ad format, it marked the beginning of a full-on showdown among the big Web players, each aiming to own the shrinking display ad market.

Despite early predictions that ’08 would be a good year for display advertising, it didn’t take long to recognize display would take a turn for the worse. First quarter results showed display ad spending slipped, along with all of online advertising. Display growth dropped from around 16 percent in Q1 2007 to 8.5 percent in Q1 2008, according to TNS Media Intelligence. Meanwhile, the Interactive Advertising Bureau weighed in with its overall online ad revenue tally, courtesy of PriceWaterhouseCooopers; spending growth decreased from 26 percent in Q1 2006 to about 18 percent in Q1 2008.

By the next quarter, big names in display advertising were reporting declines. In July, Yahoo reported weak display ad revenues, blaming advertisers moving away from higher-priced CPM-based display towards more cost-effective performance-based display advertising. The company’s President Sue Decker told investors spending on its guaranteed, premium ad inventory dropped as a result of the economic downturn and pricing pressure.

Yahoo said it would shift its sales efforts to accommodate greater demand for performance-based display advertising because of brand ad weakness. That same month, Microsoft and large ad network firm ValueClick also reported display softening. Regardless of predictions that Web advertising could weather the economic storm, the industry was starting to get hit.

Early in the year, JPMorgan thought the market had seen the bottom of CPM-based display costs. The firm’s analyst Imran Khan predicted CPM rates would edge back up, in part because companies would develop ways to better monetize excess social media inventory that had been pushing down prices. But by September, Kahn had done a 180, pronouncing display as the weakest of online ad formats. He reduced his forecast for display spending in ’08 from $8.6 billion to $8.2 billion, expecting “long-tail advertisers” to gravitate toward performance-based advertising.

Next year doesn’t look good either: its display ad forecast was lowered from $10 billion to $9.4 billion.

And networks are bringing in smaller CPMs. Ad network optimization firm PubMatic reported in October that display ad rates were down for the second quarter in a row, to an average of $0.27. While social networking sites took in the lowest rates ($0.21), small sites with under one million page views per month grabbed CPMs three times that — $0.61 on average.

As the current oil market affirms, lower demand can lead to lower prices, especially when it comes to a commodity. Like it or not, display ads have become just that. “The eCPMs across our business have gone from about $2 down to about 40 cents, and I imagine within the next year, two years, it will continue to plummet,” said J. Moses, co-founder of Hearst’s UGO Entertainment at the recent UBS Global Media and Communications Conference in New York. Moses and others blame the increasing efficiencies and refined targeting enabled by ad networks, along with surplus social media ad inventory for declining CPMs. “No one would have predicted that better tools would produce a lower yield for publishers, and that is exactly what has happened,” he said.

“There wasn’t a precipitous drop in growth” for display advertising in 2008, said Internet and mobile analyst Jeremy Liew, managing director at Lightspeed Venture Partners. The pressure on display ad prices, Liew said, is part of a long-term trend. However, he added, the recession is adding to the display downturn. “I think it’s actually a pretty simple story.”

Companies Still Focus on Display
Despite the poor display market outlook, companies are clamoring to maintain and build their display businesses. When announcing its first quarter earnings this April, Yahoo expressed its desire to dominate display. Its long-anticipated ad platform, eventually named APT, would lead the way. Finally unveiled in September, the platform enables media sellers and buyers to package and purchase ad inventory in an exchange environment. Yahoo’s newspaper site partners have been using the system, which will be made available more widely next year.

Yahoo also showed display strength this year by bolstering its non-Yahoo display network through deals with additional newspaper partners, AT&T, and Wal-Mart. Recognizing Yahoo’s display ad prowess, some argued Microsoft’s failed bid for the firm was intended not only to shore up its search ad capabilities, but to help Microsoft compete in display.

In June, comScore Ad Metrix showed Yahoo controlled a 10.5 percent share of the display ad market, second to MySpace-owner Fox Interactive Media, which ran almost 16 percent. AOL came in at a distant third with 5.8 percent, and Microsoft with 4.7 percent.

Google garnered a mere 1.5 percent of the display market in June, according to comScore. But the search ad leader sought to change that this year. In March, Google’s President, Advertising and Commerce, North America Tim Armstrong, told the audience at the Bear Stearns Media Conference, “We have a long-term horizon here which is we want every advertiser in the world to put all of their assets into our system…We would be disappointed in 2008 and 2009 if we don’t have a very significant presence in the display market.”

Google managed to remove one major obstacle to boosting its display ad sales this spring. The firm began accepting third-party ad tags. Until May, Google’s system did not enable some rich media — and perhaps more important — it prevented advertisers from employing third-party tracking, reporting, and research technologies they had grown accustomed to using when buying on sites like MSN, Yahoo, AOL, and ad networks.

AOL also aimed to better compete with the likes of Yahoo, Google, and other networks for display dollars through an auction-based self-serve ad platform it launched in September.

While publishers build new platforms to ease the process of online ad buying in the hopes of moving more ad dollars online, some networks introduced more custom solutions to woo advertisers, including Federated Media Publishing, Glam Media, and NetShelter. NetShelter, for instance, created the site to better integrate sponsor messages. Panasonic is currently running ads on the site for its VIERA flat panel HDTVs.

That’s one way to appeal to brand advertisers. But some believe a major flaw in the way the display market operates comes in on the back end. “Branding has been inappropriately measured by click-through rates,” suggested Liew, who agrees with a recent comScore report that promotes the use of ad metrics beyond simple clicks, based on visits to an advertiser’s site, likelihood of a user conducting a search about the brand, and likelihood of buying the advertised brand online or in a store.

“All these things are much harder to measure” than clicks, he added.

Some firms took a stab at it this year, though. Eyeblaster introduced a service that tracks consumers who click on display ads but don’t act right away, by identifying them when they convert via search later on. And, for its Atlas ad management clients, Microsoft unveiled Engagement Mapping, which assigns a value to various types of ads and impressions according to factors like frequency, ad size, and how recently the ad was shown. The goal is to apply credit to more brand-oriented efforts often dominated by display advertising.

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