I grew up in New England, where a lot of small towns have an annual bet — usually sponsored by the Lions or Rotary Clubs — in which participants wager a buck on when the local body of water will thaw. Sometimes, the Lions Club will even put an old, beat-up car out onto the ice and make the bet contingent on when the car falls through. People consult “The Old Farmer’s Almanac” and their farm or hunting journal weather records and make highly educated guesses.
In almost every betting community, someone guesses pretty close to the actual ice-out. You would think that with all the smart people running around the online media industry, we might do better at predicting our own thaw.
Unfortunately, the estimates we’ve seen over the past two years (yes, we’ve been suffering declining growth rates that long) have been hopelessly optimistic. Instead of consulting useful information sources, the people making predictions have been voicing their desire for recovery more than informed opinions.
I’d like spring to come in late December, but I’m not putting two dollars on that guess in Nenana (I’m betting on March 30 next year). Likewise, while I’d love to see interactive marketing budgets start growing exponentially again come June, it’s just not going to happen.
According to Sharpermedia.com, Jupiter Media Metrix released a report showing business-to-business (B2B) online advertising dropped 10 percent this year but will recover to an annualized growth rate of 37 percent.
This is precisely the type of prediction we’ve repeatedly been seeing. We are perennially a mere two quarters away from recovery. It’s easy to see why we’re fed such inaccurate predictions.
A researcher sends out a survey to a few hundred businesses to ask what they spent and what they will spend online. Those business people then give them what they’ve told the people financing their often-money-losing ventures: Today is bad. Tomorrow will be much, much better.
In business, it’s called the “hockey stick,” representing the uptick on a graph depicting a business losing money for a while until a certain critical mass is hit. At that point, profits rise higher and higher. People financing such ventures tend to have the annoying trait of demanding that those profits happen sooner rather than later. If the venture needs continued funding, the business tells the financers what they want to hear. In turn, it tells the research group that profits are just around the corner.
Media budgets will turn on a complex interaction of many variables, not unlike the weather: general economic conditions, perceived spending, elasticity of consumers, availability working capital, CFOs no longer needing to pad earnings, and more. Only after big, macroeconomic factors turn around will the more immediate, microeconomic factors of the industry become apparent.
The rush to buy online incumbencies can happen when those numbers come into alignment. They will happen when additional factors fall into place: marketers recognize online’s branding benefits, cost-per-thousand (CPM) rates drop significantly, and a new cadre of online marketers grows up with equality within its marketing organizations.
Online composes only a small portion of current billings. It has lots of room to grow, and will. Even at a 37 percent growth rate, online will make up only 8 percent of the B2B advertising market by 2006.
The silver lining seems to be that all other media, such as print, have it a whole lot worse. According to CMR’s Adscope, the top 10 business publications’ ad pages are down around 47 percent. That makes our own 10 percent decrease in online spending look like a boom.
It seems that lots of economists expect the economy to flounder around breakeven for the next year or so. Assuming it starts to rise after that, conditions will be in place for the interactive industry to begin a second stage of hypergrowth. It would take a couple quarters to gain proper momentum. That’s why I’m going to put two dollars in a jar for the interactive industry to see billings begin growing by leaps and bounds only in the second quarter of 2003.
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