Five Reasons To Plan For Slower Growth

The glowing reports keep rolling in on the frenzy that was Holiday Season ’98 great news by any measure!

E-Commerce was way, way up. Ad spending surpassed all expectations. Web traffic grew exponentially. New Internet-enabled PC sold like hotcakes. Any way you look at it, Q4 ’98 was very, very good for the Internet business.

But it’s 1999 now, and as every media-experienced ad sales person knows, Q1 ad sales rarely live up to the expectations set by the previous Q4. This has not been true yet in Internet advertising, as our young industry has been on such a rapid growth curve that every quarter has shown an up tick. And it’s possible that 1999 will continue to grow at rates that exceed growth rates to date.

Possible. But the smart ad sales manager doesn’t bank on it.

Expect a drop off in Q1 — in percentage growth rates, if not in absolute dollars generated.

Gloom and doom?

Not at all. We’re big believers in the Internet advertising business, and expect it to continue to thrive for years to come. But just as many observers question the high valuations Wall Street has granted Internet businesses, we question the wisdom of expecting continual, double-digit growth in ad spending. It would be foolhardy to expect either to climb indefinitely.

To the sales executive who has to answer for revenue, a dose of reality in setting expectations can prevent a lot of heartburn down the road.

To the top executives and board members who push back when your sales manager submits what looks to be a “lowball budget,” this column is for you.

Herewith, the top five reasons to plan for slower growth in Q1:

  1. The end of the big spenders. E-commerce sites, the biggest ad spenders in December, know their sales will drop off after gift-giving season ends. So they cut back ad spending, often drastically.
  2. Lots aren’t finalized. Many advertisers run on annual budgets, and though the budget process started last fall, lots are not yet finalized. Until that budget is approved, the agency’s hands are tied. They can’t spend anything until that budget gets signed.
  3. Still evaluating. Some new entrants who jumped in late in 1998 will stop to evaluate their buys, to analyze results, to decide how they want to move forward. If they did not have clear criteria for success, this evaluation may take a long time. If the success criteria was unreasonable, it may scare them out of the market for quite a while.
  4. Shrinking budgets. Lots of advertising is just seasonal, and budgets often shrink in the new year.
  5. Slowed by success. Though counter-intuitive, success can slow things down too. As online advertising becomes a larger share of any company’s ad program, the desire to integrate ad campaigns on- and off- line grows. Integration takes time, especially when it requires asking different buying groups, different creatives, even different agencies, to work together. Though positive in the long run, any move toward integration is likely to put a crimp in short-term ad buying.

    This does not mean to expect the worst. It is not a prophesy of an industry in trouble.

    It does mean that as we creep closer and closer to the ranks of mainstream advertising media, we would be wise to prepare for some of the realities that impact those industries. And anticipating a slowing of growth now is far better than having to answer for it when expectations were set too high.

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