What’s Wrong With This Picture?

Sometimes I wonder if there are two online ad industries: the bright, cheery, smiling Dr. Jekyll business, where everything’s going just fine, thank you very much; and the dark, brooding, erratic Mr. Hyde industry, in which people are constantly, quietly, laid off.

Witness the past couple of weeks. The Online Publishers Association (OPA) released a member survey that showed: “high-quality content sites report substantial third-quarter and year-to-date ad revenue growth.” It touted growth stats like 35 and 50 percent. Who are these publishers? Well, OPA Executive Director Michael Zimbalist says they’re the “online divisions of established media companies,” which, “are emerging as engines of growth in an otherwise lackluster economy.”

Meanwhile, some top execs from online divisions of established media companies hobnobbed with guests at an invitation-only shindig hosted by the Interactive Advertising Bureau, the industry’s largest trade group. Publishers like the Wall Street Journal Online, Forbes.com and Advertising Age sponsored the do, designed to showcase and sell the sponsors’ (and other ad sellers’) wares. In addition to a golf workshop and a cruise around Manhattan, guests were regaled with tales of online advertising’s power and effectiveness, especially in cases where traditional and online are combined (the theme was “The Integration Imperative”).

Another of those established media companies, McGraw-Hill, finished October by publishing a news analysis by Heather Green in BusinessWeek, talking of a new enthusiasm surrounding online advertising. “A solid, more stable online ad market finally is emerging,” she wrote.

Around the same time, news was leaking that the situation at these established media companies wasn’t nearly as rosy as it might appear. Many online divisions were paying the price. According to Newsday, the San Jose Mercury News, and a Reuters story in Forbes.com itself, things have been going so badly at Forbes and BusinessWeek they’ve been forced to layoff staff. The Daily News reported 25 jobs were lost at Forbes, including the Web division. While numbers at BusinessWeek weren’t specified, its Internet unit was hit too, according to reports. The Wall Street Journal Online hasn’t been immune. Its parent, Dow Jones & Co. announced it’s cutting 230 jobs, or three percent of the workforce.

Ad sales are up, but employment is down? Hmm. Something’s wrong.

Growth figures like 35 and 50 percent don’t tell the whole story. When you’re talking very small numbers, even 50 percent growth doesn’t represent a whole lot of dollars. You can’t blame the OPA for trying to put a positive spin on things. In an environment where the rich generally get richer and the poor get poorer, it rarely hurts to appear rich. The IAB says the top 10 media companies account for 76 percent of online ad revenue; the top 50 media companies account for 97 percent. If you attract more dollars when you’re bigger, you might as well puff yourself up.

Another issue contributing to this Jekyll/Hyde phenomenon is financial publications, especially traditional financial ones, seem to have been hit especially hard in recent months. They’re victims of the general economic malaise. That explains why Forbes, BusinessWeek and Dow Jones are making layoff headlines. Even when things aren’t terrible in online divisions (the OPA says the Wall Street Journal Online indicated online ad sales were up 24 percent in the third-quarter, compared to Q3 2001), the weight of the larger company can drag things down. Online may not be doing as dismally as it would initially appear.

Thought there’s really only a single online ad industry, it’s clear divisions are forming. The difference isn’t good and bad, or light and dark. It’s a matter of business models and priorities. The fortunes and positioning of the “big guys,” the online arms of traditional publishers, are increasingly disconnected from the rest of the players on the scene. The OPA’s loudly trumpeted press release and quieter layoffs illustrate the unique position these companies find themselves in.

I’m not the only one noticing this divide. It’s obvious when you read the IAB’s statement announcing its new directors this week: “The new Board members come from a diverse group of companies, and underscore the IAB’s mission to represent the entire industry, not any specific group of publishers,” a subtle dig at the more elitist OPA.

To that end, newly elected board members included two more representatives of the burgeoning paid search industry. Overture Services, the acknowledged leader in the field, was already represented on the board. Now, it’s joined by Google and Looksmart. These companies, as well as new IAB board member firms like MSN, B2B Works and AutobyTel, aren’t eligible for membership in the OPA, as they’re not strictly publishers.

Will one faction live in a bright, sunny, Dr. Jekyll world, while the other suffers in erratic Hyde darkness? I doubt it. Both have very valid value propositions for advertisers and marketers. How they go about making their cases, may sound very different indeed.

Pamela will moderate a panel on rich media at ClickZ Email Strategies in San Francisco, November 18-19.

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