Are We Sure About Pending Collapse of Ad-Supported Internet?
by
on October 06, 2008,
The current economic crisis is already compared quite often to the Great Depression of 1930s. And while similarities are already here and probably we will have more of them to witness if the situation continues to worsen, there is one thing that bothers many of us here in the technology blogosphere - the future of internet. It is a well-known fact that the vast majority of internet businesses (startups and blogs alike) rely heavily on advertising for their income.
The first thing people usually express concerns about is how online advertising market will be affected during this difficult period with companies looking for way to cut expenses everywhere they can - with advertising supposed to be first item to cut. And we quickly jump to a conclusion that there will be no money to be made online (or much less money to support everyone working here now) - thus we will face a collapse or at the very least stagnation of internet industry.
But for some reason this seems to be an over-simplified approach to me so since we have already started to compare the current financial turmoil to the Great Depression, I decided to see how advertising was doing at that difficult time and see if it was really that bad. To my surprise the results were contrary to what I expected to see with advertising actually looking like a relatively healthy industry for the generally bad financial environment at the time.
The first thing to keep in mind is that people will not stop buying products that are essential to them. True, people will hardly buy luxury products when they need to make decisions on what is really important and what they could live without given limited resources. But that does not mean people will not buy anything at all - it simply means the focus will change for them. So the first conclusion is that we will obviously see less luxury brands advertised. But it does not mean that manufacturers of those essential products will stop advertising as well. What’s more, they will have to compete with each other for those scarce money people will have in their disposal.
What’s more, in a bad environment consumers will be actively looking for better deals to spend those scarce money wisely. And if a company can offer a better deal to a consumer, it should advertise this opportunity because if no one knows you have something better to offer when compared to your competitor, how will you manage to make consumers make a choice in favor of your product.
There was quite a number of examples of successful brands during the Great Depression, including Chevrolet cars, Camel cigarettes and Procter & Gamble (that gave birth to the phenomenon of soap opera during those hard times). And all of them relied heavily on advertising because they realized that they needed advertising to create and maintain brand loyalty. They simply pretended there was nothing particularly wrong with the economy and consumers still had money to spend - and this proved to be the right approach for them.
We should also keep in mind that advertising is one of the measures to demonstrate to consumers that the company is healthy. After all, not all the consumers have a daily habit of tracking stock market behavior to know what’s going on - yet when they see a company spending money on advertising, they think everything is fine with the company. Say, if every time you see a T-Mobile or Blackberry ad on every single blog you visit and one day you see those ads replaced with AT&T and iPhone respectively, your first reaction is supposed to be thinking that the first two are already facing some serious problems while the competitors are in a better position.
And this explains why those companies that survived the Great Depression and even grew during the recession period were not those that were wise about their budgets and cut on advertising as much as they could - instead those were the companies that continued to push their brands to consumers, thus making those consumers choose their brands over competitors (under-advertised) when making a decision what to spend their limited money on.
Any recession is a period when everyone needs to make a decision of choosing between available options to make wiser decisions. Similarly as consumers choose what they will buy looking for better deals, companies will also want to make sure that all the investments are reasonable. So those types of advertising that happen to have good return on investment will most certainly stay appealing to advertisers. At the same time advertisers will probably avoid paying for eyeballs where they can not evaluate how many people that view the ad actually make a purchase. Companies will still want to stand out of the crowd but they will not want to through money away for the sake of it because standing out of the crowd will mean making more sales thanks to brand loyalty.
I can not be 100% sure but I think it is very much possible that forward-thinking companies will probably avoid cutting their advertising budgets. Instead, they will need to decide where advertising performs the best. I have a feeling that internet has pretty strong chances of becoming that platform advertisers will turn to as an alternative to their current old media platforms looking for easier measurable conversion rates.
Of course certain rearrangement of how online advertising market is functioning now is absolutely possible with advertisers turning to various CPC and CPA solutions where they know for sure what they pay for instead of paying for some abstract brand exposure. But that does not mean that online advertising will be severely damaged by the recession. Of course I may be too optimistic in this position but for now I would not be 100% sure predicting a doomsday of the internet economy.
Photo of the outdoor advertising during Great Depression courtesy of the University of Texas in Austin. Photo of the $.99 bargain by PetroleumJelliffe used under Creative Commons.
